A$ A$ A$ Foreign Exchange Trading Game Welcome to the Enter Designed by Matt Dalgleish

This game was designed for use in VCE Economics Unit 2, Area of study 1 - Australia’s external relationships. The game is conducted as a slide show. Each slide consists of an economic scenario that is likely to influence the value of the Australian dollar (A$). Included on each slide is a statement explaining the economic reasoning applied when determining the probable impact on the A$. To reveal a new scenario or the reason and impact statements for each slide simply click your mouse. To return to the portfolio simply close this window using the X button at the top right hand corner of this window at any stage during the game. Play Game

The ABS announces that the CPI increases 2.8% for the year This CPI figure is within the RBA target band of 2-3% inflation. Therefore, the RBA is unlikely to change interest rates. This level of inflation reflects a stable economy.ScenarioImpact Reason No obvious impact on the A$ No obvious impact on the A$.

Growth rates in USA, Japan and China expand rapidly These countries are Australia’s three top export destinations. Rapid growth in their economies would increase their consumption. This is likely to increase their demand for Australian exports. Increased demand for Australian exports would increase demand for appreciation the A$ leading to an appreciation.ScenarioImpact Reason

Sydney Olympics causes a large increase in tourists to Australia Tourism is one of Australia’s largest export industries. The increase in visitors will lead to an increased demand for the A$ as they will need to spend the local currency while visiting. Tourists buying A$ to spend here will increase demand for the A$ leading appreciation to an appreciation.ScenarioImpact Reason

US interest rates increase but Australian rates stay the same The higher rates in the USA will attract capital inflow into the USA. Offshore investors will take money out of Australia to invest into the USA for the higher return. Investors will sell A$ in exchange for US$ to invest in the USA. This will increase supply of the depreciation A$ leading to a depreciation.ScenarioImpact Reason

Australia signs agreement to sell $12 billion worth of uranium to China The Chinese buyers of this exported uranium would need to pay for the goods in A$. This would signify a large increase in Australian exports. Increased demand for Australian exports would increase demand for appreciation the A$ leading to an appreciation.ScenarioImpact Reason

The drought in Australia reduces our capacity to export The reduction in our ability to export our agricultural products forces overseas buyers to look elsewhere. These buyers no longer need to buy as much A$ to pay for our exports since our export volume has reduced. The reduction in demand for Australian exports would reduce the demand for depreciation the A$ leading to a depreciation.ScenarioImpact Reason

A successful campaign to buy Australian products influences local spending habits Australian buyers begin to buy locally made items in favour of imported ones. The fall in imports will reduce the need to sell A$ in exchange for foreign currency. A reduction in the sales of the A$ will reduce the supply of A$. Decreased demand for imports will lead to a reduction in supply of the A$ appreciation leading to an appreciation.ScenarioImpact Reason

Currency speculators expect A$ to fall due to high CAD/GDP ratio Future expectations have a huge influence on speculators. On the basis of this expectation, large amounts of speculators would sell the A$ with the intention of buying it back later at a lower exchange rate.ScenarioImpact Reason Speculators selling the A$ will increase the supply of the A$ leading depreciation to a depreciation.

ANZ buys a bank from Czech Government for $750 million Euro ANZ will need to sell A$ in exchange for the $750 million Euro dollars they need to pay for the purchase of the Czech Obchodni Bank.ScenarioImpact Reason ANZ selling the A$ will increase the supply of the A$ leading depreciation to a depreciation.

Rapid increases in GDP and consumer credit causes a surge in imports into Australia Increased wealth and easier access to credit allows local buyers to spend more money. Some of this spending goes towards imports. A$ is sold in exchange for foreign currency to pay for these imports. Increased demand for imports will increase the supply of the A$ depreciation leading to a depreciation.ScenarioImpact Reason

National Australia Bank sells Belfast Bank to overseas buyer for A$600 million The overseas buyer will need to buy A$ in exchange for their local currency in order to pay National Australia Bank for the purchase of Belfast Bank. This will lead to an increase demand for appreciation the A$ leading to an appreciation.ScenarioImpact Reason

Local investors panic causing the sharemarket to crash Since there is no mention of what overseas holders of Australian shares have done we must assume they are still holding their portfolio and have not entered the FX market. No obvious impact on the A$ No obvious impact on the A$.ScenarioImpact Reason

Foreign investors think the Government’s economic policies are ruining the economy. Foreign investors do not like to see bad economic management. This would cause them to reduce their investments in Australia. This capital outflow would require them to sell A$ in exchange for foreign currency to invest elsewhere. Increased sales of the A$ would increase the supply of the A$ depreciation and lead to a depreciation.ScenarioImpact Reason

A sustained increase in commodity prices Australia is a large exporter of commodities. Most of these commodities are essential items and an increase in the price means the overseas buyer is forced to pay more. They will require more A$ to pay for the commodity price increase. There will be an increased demand for appreciation the A$ leading to an appreciation.ScenarioImpact Reason

Oil prices continue to climb higher Higher oil prices can, in some cases, contribute to higher production costs and lead to inflation. However, the impact of this on Australia is extremely limited as we do not import a lot of oil as a percentage of GDP.ScenarioImpact Reason No obvious impact on the A$ No obvious impact on the A$.