Assume that Australians invest heavily in government and corporate securities of Malaysia. In addition, residents of Malaysia invest heavily in Australia. Approximately Australian dollar (AUD) 30.8 billion worth of investment transactions occur between these two countries each year. The total dollar value of two-way trade transactions per year is about AUD17.5 billion. This information is expected to also hold in the future. Because your firm exports goods to Malaysia, as the international cash manager, you are required to oversee the moments of Australian dollar value against the MYR.

Explain how each of the following conditions will affect the value of the AUD, holding other things equal.

1. Australian inflation has suddenly increased substantially, while Malaysian inflation remains low.
2. Australian interest rates have increased substantially, while Malaysian interest rates remain low.
3. The Australian income level decreased substantially, while Malaysian income level has remained unchanged.
4. The Australian government is planning to impose a small tariff on goods imported from Malaysia.