4. (Ch, 4) Aggregate Effects on Exchange Rates. Aswume that United States residents invest heavily in the Austmilian government and stocks, In addition, Australian residents invest heavily in the United States. Because your firm imports goods from Australia, you are assigned to forecast the value of AUD (the Australian dollar) against the USD - i.e, you forecast S(AUDUSD). Explain how each of the following conditions will affect the value of the AUD, holding other thing equal. Then, aggregate all of these impacts to develop an overall forecust of the AUD's movement against the USD. (Please plot a figure to explain each condition, except for question f. No figares, no 2 points.) a. U.S. inflation has suddenly increased substantially, while Australian inflation renains, low. (8 points) b. The U.S interest rates have increased substantially, while the Australian interest rates remain the same. ( 8 points) c. The income level in the US. increused substantially, while the Australian income level has remained unchanged. ( 8 points) d. The U.S. is expected to impose a new small tariff on goods imported from Australia.; ( 8 points): e. In Australia, the recent dysfunction within the two major political partics has seen seven different Prime Ministers take office in the past decade. You expect that this situation may be going to get worse and assame Australia is not a safe havea. (8 points) f. Combinc all expocted impacts to devclop an ovirall forceast ( 3 points) 4. (Ch, 4) Aggregate Effects on Exchange Rates. Aswume that United States residents invest heavily in the Austmilian government and stocks, In addition, Australian residents invest heavily in the United States. Because your firm imports goods from Australia, you are assigned to forecast the value of AUD (the Australian dollar) against the USD - i.e, you forecast S(AUDUSD). Explain how each of the following conditions will affect the value of the AUD, holding other thing equal. Then, aggregate all of these impacts to develop an overall forecust of the AUD's movement against the USD. (Please plot a figure to explain each condition, except for question f. No figares, no 2 points.) a. U.S. inflation has suddenly increased substantially, while Australian inflation renains, low. (8 points) b. The U.S interest rates have increased substantially, while the Australian interest rates remain the same. ( 8 points) c. The income level in the US. increused substantially, while the Australian income level has remained unchanged. ( 8 points) d. The U.S. is expected to impose a new small tariff on goods imported from Australia.; ( 8 points): e. In Australia, the recent dysfunction within the two major political partics has seen seven different Prime Ministers take office in the past decade. You expect that this situation may be going to get worse and assame Australia is not a safe havea. (8 points) f. Combinc all expocted impacts to devclop an ovirall forceast ( 3 points) b. The U.S. interest rates have increased substantially, while the Australian interest rates remain the same. ( 8 points) c. The income level in the U.S. increased substantially, while the Australian income level has remained unchanged. ( 8 points) d. The U.S. is expected to impose a new small tariff on goods imported from Australia. (8 points) c. In Australia, the recent dysfunction within the two major political parties has seen seven different Prime Ministers take office in the past decade. You expect that this situation may be going to get worse and assume Australia is not a safe haven. ( 8 points) f. Combine all expected impacts to develop an overall forecast. ( 3 points) 5. (Ch. 4) Spot Exchange Rate Movements. Suppose you have a " buy EURUSD" position for some units of the EUR. You bought the EUR with the USD at St.1 (EURUSD) =1.1780 on September 8 (seven days ago). Today is September 15, with S1 (EURUSD) =1.1850. What is the annualized percent change in the exchange movements in these seven days? (Annualize by multiplying "360/7") (6 points)
