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TODO FILL NOTE GAP ON EXCHANGE RATES 🔼 📅 2024-04-15
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Ch 5.4
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Australia has a floating exchange rate system (Since December 1983)
Fixed exchange rates
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- when the government (or RBA) officially sets the exchange rate for an economy
- before the floating of the AUD in 1983, it was fixed (pegged) to the TWI
Flexible Exchange Rates
- There are two types of flexible exchange rates
? - Clean float : pure demand-supply model with no intervention
- only exists in theory as exchange rates can be very volatile without some intervention
- Dirty float : managed to a certain extent through RBA Direct Intervention
Managed exchange rate
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- Refers to any official intervention by a government in setting the exchange rate.
- similar to a Fixed exchange rate
- as the currency is pegged (or adjusted) daily to variations in a major trading partner’s currency
- fluctuates more often
- as it is additionally respective to global demand and supply factors