How the reactions of australian residents

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Reference no: EM133496311

Question: The US and the Australia are trading partners, and both countries operate floating/flexible exchange regimes. Last month the Reserve Bank of Australia (RBA) raised the target cash rate to 3.85%, in response to the rising inflation rate in Australia. Suppose the US Fed's fund rate remained unchanged. Suppose that the RBA's target cash rate was equal to the US Fed's fund rate before the RBA raised its target cash rate. a) Analyse, in detail, how the reactions of US residents to a higher cash rate in Australia relative to the Fed's fund rate would impact the Australian dollar (AUD). Your answer must reflect an understanding of the operation of the demand and supply diagram of the Australian dollar. [4.5 marks] b) Analyse, in detail, how the reactions of Australian residents to a higher cash rate in Australia relative to the Fed's fund rate would impact the Australian dollar (AUD). Your answer must reflect an understanding of the operation of the demand and supply diagram of the Australian dollar.

Reference no: EM133496311

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