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The following diagram shows a demand curve and supply curve of the Australian Dollars against the Japanese yen.

(a) Who is demanding Australian dollars in the foreign exchange market and for what purpose?

(b) Who is supplying Australian dollars in the foreign exchange market and for what purpose?

(c) Mark the equilibrium exchange rate.(do research to identify the exchange rate)

(d) Now illustrate the effect of an increased demand for dollars and a decreased supply.

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(e) Has the exchange rate appreciated or depreciated? ... XXXXXXXXXXAppreciated I Depreciated

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Robert · Accepted Answer

1 
 
a. In the foreign exchange market, Japanese investors need Australian Dollars in exchange for 
Japanese Yen to invest into Australian investment avenues. This is because in foreign exchange 
market, foreign investors need to bring in foreign exchange reserves in order to use their foreign 
currency by exchanging their currency with that of the foreign currency. Hence, the country 
where foreign investment will be done would experience rise in their foreign exchange reserves.
b. In the foreign exchange market, the supply of Australian Dollars will be done by the central 
bank of Australia so that foreign investors from Japan would be able to put their investment 
amount into foreign country. For investment purposes,

p.p1 {margin: 0.0px 0.0px 8.0px 0.0px; font: 11.0px 'Trebuchet MS'} span.s1 {letter-spacing: 0.0px} The following diagram shows a demand curve and supply curve of the Australian Dollars against the...

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