Question 6: Finance and globalisation [10 Marks]

Show all your workings when calculations are required and round off your FINAL result to TWO decimal places.

Oz Eat's is a casual dining restaurant chain which has expanded its operations internationally.

Oz Eats currently needs to convert its profit earned in the U.S. market into Australian dollars. The quote advertised by a local foreign exchange dealer in Melbourne is

AUD 1 = USD 0.6904-0.7620

a) What is the commodity currency in the above quote? Is it a direct quotation or an indirect quotation? [2 marks]

b) What is the rate at which Oz Eat's can exchange US dollars into Australian dollars? Explain why. [2 marks] c) If Oz Eats has USD $10,000, how much AUD can it convert to given the rate it has accepted in part b)? [1 mark]

d) Suppose Oz Eats will also need to buy USD with AUD in 3 months to pay for its import bills. If 3 month later, the Reserve Bank of Australia decreases its cash rate, holding everything else being equal, would this change be more likely to result in an appreciation or a depreciation of AUD against USD? Briefly explain why. [3 marks]

e) Would Oz Eats be better off or worse off from the change in part d), explain why. [2 marks]