Company A is evaluating an offshore investment in renewable energy to pay for its CO2-e emissions and sell the remainder (RECs) to the Australian market. The questions in this exam will present the theories and characteristics for this investment in RECs.

Scenario analysis (foreign stagflation & foreign government and central bank response)

Consider a possible future stagflation in the foreign country - the foreign government intervenes and increases taxes on foreign owned businesses to subsidize government spending to increase employment and the central bank increases interest rates to reduce inflation - assume interest rates change nominal exchange rate.

Question

c - Define the concept and benefits of a change rate in this scenario described above.

d - What impacts will happen due to Volatility of the Rupee to the AUD? What solutions would you suggest?

e - Define the concept of exchange rate shock and analyze how it can be performed in the scenario above.