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QLDEconomicsQuick questions
Unit 3: International economics
Quick questions on Exchange rates and the balance of payments (QCE Economics Unit 3)
15short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is exchange rate regimes?Show answer
1. Floating. Determined by market demand and supply. Australia floated the AUD in December 1983. 2.
What is the foreign exchange market?Show answer
Draw the AUD price (USD per AUD) on the vertical axis and quantity of AUD on the horizontal axis.
What is determinants of the AUD?Show answer
1. Terms of trade and commodity prices. Iron ore, coal and LNG dominate Australian exports. Higher commodity prices raise foreign demand for AUD.
What is recent AUD movements?Show answer
The AUD/USD has been range-bound between USD 0.62 and 0.70 through much of 2024-25, reflecting high terms of trade (supportive) offset by US-AU interest rate differential (US rates higher) and China growth concerns.
What is the balance of payments?Show answer
The balance of payments records all transactions between Australian residents and the rest of the world. ABS publishes quarterly (cat. no. 5302.0).
What is current account components?Show answer
1. Balance on goods and services (BOGS). Exports minus imports. Driven by terms of trade and the AUD.
What is australia's CA position?Show answer
Recent figures (ABS, indicative):
What is capital and financial account components?Show answer
A net capital inflow (KAFA surplus) finances a current account deficit. A net capital outflow (KAFA deficit) results from a current account surplus.
What is the savings-investment identity?Show answer
The balance of payments can be expressed in macroeconomic terms:
What is effects of AUD movements on the economy?Show answer
Depreciation: - Exports more competitive; export volumes rise (BOGS improves over time after J-curve). - Imports more expensive; imported inflation rises. - Servicing costs on foreign-currency debt rise.
What is the J-curve?Show answer
When the AUD depreciates, the BOGS may initially worsen because:
What is 1. Balance on goods and services?Show answer
Exports minus imports. Driven by terms of trade and the AUD.
What is 2. Net primary income?Show answer
Interest, dividends and wages paid to/from non-residents. Australia runs a persistent deficit of around 4 percent of GDP due to its net foreign liabilities position.
What is 3. Net secondary income?Show answer
Transfers without a corresponding good or service (foreign aid, remittances).
What is 4. Capital account?Show answer
Small balancing item: capital transfers and acquisition of non-produced non-financial assets.