Exchange Rate

Table of Contents

1.0 Abstract 2 2.0 Introduction 3 3.0 Objective of the Study 5 4.0 Literature Review 5 5.0 Contents 8 5.1 Factor That Effect Exchange Rates in Long Run 8 5.2 Exchange rates in short run (A supply and demand Analysis) 10 5.3 Factor that determinant exchange rate 11 5.3.1 Shift the demand for domestic assets 11 5.4 Other Factors that effects exchange rates and its volatility 12 5.4.1 International financial crises 12 5.4.2 Speculators effect 12 5.4.3 Central bank intervention policy 13 5.2 The effects of exchange rate and volatility 14 5.2.1 International trade, export and import 14 5.2.2 Foreign direct investment 15 5.3 The Empirical model 18 6.0 Conclusion 20 References 21

1.0 Abstract

This paper prefers theoretical and empirical evidence that exchange rate has negative impact on international trade or export. In this paper, we focus on export of Australian country. We also, offer a simple model of domestic and foreign asset demand to determine the exchange rate of home country. From this model, we can see the result, either the exchange rate are appreciate or depreciate in value. We use annual data from world databank (2012) over the period 1980 to 2012 for this study. We also use Ordinary Least Square (OLS) to fine the relationship between real exchange rate and export trade. The result shows that export are negatively influence by exchange rate volatility. This result gives a significant result and supported by the theory.
2.0 Introduction

Since the breakdown of the Bretton Woods system of fixed exchange rates, both real and nominal exchange rates have fluctuated widely. Under this system, each country’s central bank was obligated to intervene in the foreign exchange market to keep the exchange rate in a narrow band around the previously agree rate. This Bretton Woods system will encourage more open trade, finance and investment and lead to a period of rapid economic growth after World War 2.

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