In this figure two possible demand curves are labelled D1 and D2; two possible supply curves are labelled S1 and S2 and four possible equilibrium points are labelled A, B, C and D.

These labels can be used to describe various scenarios in terms of shifts of demand and/or supply curves and the resulting equilibrium exchange rate.

Describe what will happen in the AUD-EURO market using the above graph and corresponding labels in the following scenarios. Carefully explain each step.

1. Italy decreases the demand for Australian steel by 50%. Assume that the market is initially in equilibrium at point B

1. Currency speculators believe that the value of the euro will decrease relative to the dollar. Assume that the market is initially in equilibrium at point A

1. European investors increase their holdings of Australian Government's bonds. Assume that the market is initially in equilibrium at point A

1. Interest rates in Australia increase relative to those in the European Union. Assume that the market is initially in equilibrium at point A

\f