Question

Question 6: Finance and globalisation

Show all your workings when calculations are required and round off your FINAL result to TWO decimal places.

Oporto is a new and upcoming food franchise in Australia, which has expanded its operations internationally.

Oporto currently needs to convert its profit earned in the U.S. market into Australian dollars. The quote advertised by a local foreign exchange dealer in New York is AUD 1= USD 0.7600-0.7800 a) What is the commodity currency in the above quote? Is it a direct quotation or an indirect quotation? (1 mark)

b) What is the rate at which Oporto can exchange US dollars into Australian dollars? Explain why. (2 marks)

c) If Oporto has USD $10,000, how much AUD can it convert to given the rate it has accepted in part b). (1 mark) d) If 3 month later, the Reserve Bank of Australia increases its cash rate, holding everything else being equal, would this change be more likely to result in an appreciation or a depreciation of AUD against USD? Briefly explain why. (3 marks)

e) If AUD moves by 50 points against USD in both bid and offer price, given your answer to part d), what is the new quotation in New York market? (1 mark)

f) Suppose Oporto now needs to buy USD with AUD to pay for its import bills, using your answer in part e), identify the rate at which Oporto buys USD and calculate how much AUD Oporto needs to buy USD $50,000? (2 marks)

Answer 1

#opauto is new anul upcoming food franches Australia La The quote advertised by local foreign exchałye Realed in New you Hence commodity currency in above quote le AUDI USO 0.7600-0.800 is USD je 450/ AULD = 0.7600-0 7300 It is direct quote 6 we have adiset quote AUDI = USO 07600 0.7800 le Uso AUD : 0.1600 -0.780 0 We have to find I OSD 2 he AUD/USD = ? We need exchange us Dallou in Australis the Mean we need to use offer rate ie 0.7800 I uso will get exchanged in AuD 0 28001-28 Hence

1.28 AUD / uso ad after sate C) 94 oposto has aso $ 18000 then nuo in against the the USO $20,00 $ 10,00D 78 12.so nuo AUD 1:28 ② of 3 month later the Resene Bank of Australia increase its cash rate, Holding everything else being equal ood This would be change more t likely to result in Depreciation of Hol against USO Reason Inflation can lead to highes input cast for expost which makes a nation's exports less competitive in global markers which widens the trade deficit and causes the curren to depreciate hч d

so points (e AUD moved by O ooso so Means 10000 earling USD AUD 0.7500 / 0.7800 Her Moved by 50 points ie depreciation as Mow USO LAUD Congoo - 0.7550 -0.750 1:29 much AUD o posto need to buy so AUD/USD 07850 Honce require AUD for $50,000 . ( 38 759.69 1:29