Finance

This report analyzes the trends in the Australian dollar against the Norwegian krone, and attempts to forecast the exchange rate at December 11, 2012 of the Australian dollar/Norwegian krone. We show you how each economy and each countries balance of payments effects the exchange rate fluctuations. We calculate different forecasts using the naïve model, parity conditions method, and technical analysis method. After taking into consideration all of the research and facts presented in this report, we decided that the purchasing power parity was the best indicator for what the future exchange rate would be. Using these conditions we forecasted that the exchange rate at December 11, 2012 will be 5.64132 AUD/NKR.
A countries economy can be a key indicator on how the exchange rate will fluctuate in the market. The Australian economy is largely based on the services sector (80% of GDP) (kallman.com) and natural resources. The main exports are natural resources, energy, and food. Australia also has a close trade relationship with China and is negotiating with China, Japan and Korea on a free trade agreement. The GDP growth rate for Australia has fluctuated slightly over the past three years. In 2009 the growth rate was 1.4%. The rate rose to 2.5% in 2010 and fell to 2% in 2011(World Factbook). In 2010 there was an influx of foreign investment which may have boosted the growth rate. Australia was hit by the financial crisis in 2009 but bounced back quickly after only one quarter of negative growth. There was a fiscal stimulus package for more than US$50 billion and interest rates were cut to historic lows by the Australian Reserve Bank. Unemployment peaked at 5.7% in late 2009 and has fallen to 5% in 2011 (World factbook). Australia has had a negative current account for the past five years with a low of negative AU$69.34 billion (about US$58 billion) in 2007 and a high of AU$26.1 billion (about US$20.4 billion) in 2009 as seen in table 1.1. Some