Question

In the report, students must demonstrate their understanding and application of the course materials to analyse and explain the factors that determine the movement of GBP/AUD exchange rate and predict what the rate will be in 1 September 2021. Specifically, students need to:

Task (1): discuss the effect of Purchasing Power Parity on GBP/AUD exchange rate on 1 September 2021

Task (2): discuss the effect of Interest Parity on GBP/AUD exchange rate on 1 September 2021

Task (3): discuss the factors that affect the supply and the demand of foreign exchange and thus affect GBP/AUD exchange rate on 1 September 2021

Task (4): predict the GBP/AUD exchange rate on 1 September 2021 by developing your own theoretical model (combining any factors that you deem as important in determining the GBP/AUD exchange rate). You will need to estimate an econometric model to receive credit for this part. You will need to provide justification for your model.

Task (5) discuss any other qualitative and quantitative factors that may affect the prediction of GBP/AUD exchange rate in Task (4). Please explain why you did not include these factors in your model in Task (4).

Task (6): compare and comment based on Task (1) - Task (5) and form your final prediction for the GBP/AUD exchange rate on 1 September 2021.