The High Australian dollar Essay Example | Topics and Well Written Essays - 1750 words

The High Australian dollar - Essay Example Even if it becomes difficult to overcome these issues in the short run, Australian economy can be stabilized by providing better education training, tightening the fiscal policy, job opportunity and better standard of living. Over the last few decades, the rise in value of Australian dollar has become a subject of discussion among the economists. The appreciation in real exchange rate refers to the increase in the price of the average domestic goods or services relative to the price of average foreign goods and services. It leads to increase in current account deficits and rising in foreign debt (Henry, 2010). The rise in Australian dollar has both positive and negative impacts on foreign money market and its transactions. Since the value of Australian dollar is high, domestic people have the advantage of buying more products with fewer dollars while travelling in the foreign countries. However, dollar appreciation makes export more expensive in comparison to the other countries and at the same time, value of foreign investment goes up. Though Australia is a large and wealthy country, the value of goods and services produced within the country is not sufficient to meet the demand for its local customers. Thus, foreign trade to exchange of goods and services has become an inevitable part for Australia to survive in the present scenario. However, fluctuation in dollar value has been one of the important factors in deciding the volume of foreign trade and in effect is an indirect indicator of balance of payment and monetary & fiscal policy of the Australian government. The current essay seeks to analyse the extensive implication of currency appreciation of Australian economy over its foreign trade. As per the economic theory, appreciation in the real exchange rate has both positive and negative impacts on an economy. In most of the cases, the impacts are diverse and extensive. In short run, major implication for increase in