Assume that Australia trades mostly with two countries only, the United States and the United Kingdom, and that 65% of the trade is conducted with the United States, 30% with the United Kingdom, and 5% with the rest of the world. The exchange rates of the Australian dollar at two points in time, 0 and 1, are as follows:

Exchange Rate:

• Period 0 = AUD/USD 1.4541

= AUD/GBP 2.1555

• Period 1 = AUD/USD 1.7800

= AUD/GBP 2.5700

Questions

i. Calculate the exchange rates in indirect quotation from an Australian perspective. [Provide your answers to 4 decimal points].

ii. Calculate the percentage rates of depreciation or appreciation of the Australian dollar against the two currencies. Comment on your results. [Provide your final answers to 2 decimal points]

iii. Calculate the exchange rate relatives, using Period 0 as a base period, and the base value = 100 [Provide your answers to 2 decimal points].