TFIN301 International Business Finance


Individual assignment for
TFIN301 International Business Finance

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This assignment contains seven questions, 25% of full mark (or equivalent to 25 marks). This
assignment should be submitted till 28/09/2018.
Given the supply and demand curves of the exchange rate between US dollar and Australian Dollar,
𝑆 (
𝑈𝑆𝐷
𝐴𝑈𝐷), as:
𝑄𝑆 = 5 + 0.2𝑃𝑓
𝑄𝐷 = 10 − 0.6𝑃𝑓
where 𝑄𝑆 is the supplied quantity of foreign currency, 𝑄𝐷 is the demanded quantity of foreign
currency, and 𝑃𝑓 is the price of foreign currency. Here, the US dollar is foreign currency and the
Australian Dollar is domestic currency.
1. Calculate equilibrium price. (1 mark)
2. Draw the supply and demand curves of the exchange rate in a single figure when 𝑃𝑓 =
2, 4, 6, 8, 10. We call this figure as Fig. 1 (1 mark)
3. What happen for the balance of payment (BOP) if exchange rate places under the equilibrium
price (1 mark)
4. Explain the effect of spectaculars’ expectations on the equilibrium price of foreign currency.
Draw this effect on Fig. 1 as well. (2 marks)
5. Explain the effect of spectaculars’ Destabilising and Stabilising on the equilibrium price of
foreign currency. Explain these two strategies in detail and show changes in foreign exchange
rate on Fig. 1. (4 marks)
6. Subsequently, the following figure, Fig. 2, is the trend of changes in the Australian dollar
relative to the US dollar from 1983 to 2008. Give me an explanation (at least 700 words)
about reasons of depreciation (or appreciation) of AUD. You should identify the reasons and
explain them in detail. You should show changes in AUD relative to US dollar on Fig. 1. For
each reason, you should draw a figure and explain your reasons on the figure. (8 marks)
Fig. 2. The trend of changes between AUD and USD
7. Explain the role of Australian government and Australian central bank in adjusting AUD.
Assume that you are a policy maker in the two bodies, give me reasons how Australian
government can appreciate AUD relative USD. Similarly, give me reasons how Australian
central bank can appreciate AUD relative USD (at least 700 words). (8 marks)

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