Macroeconomics Essay

a)      Economically the purchasing power of country’s currency is affected by the macroeconomic variable that operates within a certain economic system. Macroeconomic activities will thus lower or increase the purchasing power of such a currency. When the Australian financial investment become riskier compared to the international shares, the Australian dollar will loose its value hence perceive a reduced purchasing power. With a high risk in the financial investment, investors both local and foreign will be less willing to invest locally but will seek refuge from investing internationally. Though the theory of capital investment accords high returns for riskier investments, this does not imply face value attribute but involves the threshold of parameters dictated by the economic financial systems.

Capital outflow from Australia by the local and foreign investors remains a basic threat to the foundations of the strength of the Australian dollar. Internationally, Australia will be perceived as an inadequate zone of investment. Its dollar will therefore loose value on the interaction image against the other currencies which will be inviting high scales of investment. Capital outflow from the Australia to the other states implies the loss of contentment and interest in the Australia dollar. The consequent loss of its value through low scales of investment within its financial systems implies an increased value in the international currencies which attracts foreign investments from Australia.

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Value of Australia

dollar

 
Rate of Australian shares

b)      The roles of production firms cannot be overlooked on the international image. The international exchange of trade commodities has significant consequences to the value of the states currencies. Elsewhere, the switch by the European firms to those of India and South Korea is a threat to the Australia dollar. This is via the effects of economic integration where countries can form trade relationships with others. With such divergence in the computer input sourcing by European firms from Australia to the India and South Korea, the next implication is a reduction in the value of the Australian dollar. Before the pull out, Australian Firms enjoyed foreign capital inflows and export benefits on their computer software. They were the sole beneficiaries into the capital inflows from the European firms. However, lack of export of computers software to Europe signifies a shortage in the foreign exchange benefits.

Alternatively, India and South Korean firms which are now the exporters of the computer components to the European countries will now embrace the foreign trade and international business economies which were pulled out of Australia. Their currencies (India and South Korea) will enjoy and an increasing value and hence a higher purchasing power. International trade regulations provide that, a country experiencing high export relations will enjoy an increasing purchasing power (value) of its currencies against that of its importing partners. Export and imports are important parameters in defining the trade relations and the value of currencies between trading partners within a certain economic integration. A country that enjoys export benefits of its products to other countries is eligible of having its currency at a high value. Otherwise a country that has a high level of import embraces the threat of low value of its currency.

 

 

 

 

 

Value of India/S.Korea currency

 

India/South Korea                                                                                                 Australian

Production function                                                                                   production

function

Level of output (India/                                                                               value of

South Korea)                                                                                              Australia dollar

Level of output (Australia)

c)      Foreign investment plays a predominant role in determining the level of economic activity. Through the forces of capital inflow and outflow, the economic strength of a certain country will change considerably to capture the economic variable, which is determined by the interaction phenomenon of the economic forces.

The high return investment in the East Asian economies will attract capital inflows within their economies. Such foreign investors including the Australians will pull out economic advantages through capital outflow from their countries to the East Asian states. The net advantage will flow to the East Asian economies bringing to them stabilities their currencies. However, the foreign investors who pullout capital from their countries will leave their states currency at a low value.

The impact of economic integration and foreign investment plays a subordinate role in determining the strength of a country’s currency. The same strength is determined by the economic advantages and disadvantages which may grow due to the capital inflow and outflow respectively. Consequently such advantages and disadvantages act in a reciprocating manner where one country get advantages at the expenses of the other. Any capital outflow through foreign capital investment outflows is a threat to the local country. It impacts negatively to the country’s currency where it will loose its value against the other state which embraces the capital inflows.

Value of currency

East Asian investment                                                                                     Australia

Curve                                                                                                            investment curve

 

Level of investment                                                                                      value of Australia

(East Asia)                                                                                                    dollar

 

Level of investment (Australia)

 

 

 

d) Export and import tariffs are key compliments that determine the strength of the state’s economy and consequently the value of its currency. Above other functions of these tariffs, they are provided to ensure a monitoring in the state of export and import level. These are mechanisms which help to streamline the nature of the economic parameters operating within the economy. Export and import tariffs are aimed at regulating the flow of the both of them within a country. Through high importation a tariffs, foreign investors are prevented from pulling out economic advantages from Australia. Through such a condition, blocking of excessive import inflow to Australia helps to ensure a high level economic function. High imports are a threat to the balance of payment. With a poor balance of payment, it means that Australia will have higher import than exports. Consequently, low levels of imports provide a condition for increasing and stable state in balance of payment. Elsewhere, the Australia dollar will achieve an increasing value through the high tariff imposition on automobiles. This is because the mobile importers to Australia will be discouraged in the same due to the high rate of tariffs which may even imply a loss in their importation activity.

 

 
Value of Australia dollar

 

 
level of tariff imposition

 

 

 

 

e)      With an increase spending on imported good by the Australian residents, this implies that the country will be having a higher level of importation than exportation. For stability in a countries economy, the level of export and import should be relatively at a state of balance. Such a balance implies the stability in Australia dollar. The same equilibrium defines the state with which the level of economy will operate in. the stability between the level of export and import defines the level of economic performance. This performance is however destabilized by the any portfolio which does not provide for equilibrium in the two. Either, the same defines the states of currency value of the country. High local importation leads to lowering in the value of the domestic currency. Either, high level of export implies a strength into the level of domestic currency. This defines the relation with which the residents are willing to hold the domestic currency. With high export the willingness is high while high import implies less willingness.

 

 

 

 

 

 
Value of dollars

 

 
Value spend on import

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference:

Grimwade, N (2000) International Trade: New Patterns of Trade, Productions and Investment. London, Routledge.

Pepar, S (1998) International Trade and Emerging Genetic Regulatory Regimes. Law and Policy on International Business, Vol, 29.

 

 

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