Question
Iron ore is the largest commodity export for Australia but is priced in the US dollars. During economic upturns (or economic downturns), the demand for
Iron ore is the largest commodity export for Australia but is priced in the US dollars. During economic upturns (or economic downturns), the demand for iron ore increases (or decreases) which in turn drives its price, quoted in the US dollars, up (or down). The Australian dollar also appreciates (or depreciates) against the US dollar as the demand increases (or decreases). Therefore, the correlation between the iron ore price in US dollar and the exchange rate is positive. Does this positive correlation increase or decrease the movement of iron ore price in Australian dollar relative to that in the US dollar? Explain.
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