Posted by **Gary.L** on Thursday, June 7, 2007 at 10:06am.

The Australian dollar is currently very high, with a value of US$0.80. Many people expect the Australian dollar to rise even higher by the end of the year, to as much as US$0.90.

Use a ¡°FOREX¡± (foreign exchange market) diagram to show the impact of this expectation on the Australian dollar. In your answer you must explain the effect of this expectation on the money supply (MS), the holdings of the Reserve Bank of Australia (the Central Bank) of gold and foreign exchange, the Current Account and

Capital Account balances, and on Australia¡¯s overall Balance of Payments. For convenience you can assume that the current account is in deficit and the capital account is in surplus.

Do some research, then take a shot. What do you think?

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