The Foreign Exchange Market is the buying and selling of non-homogeneous currencies. The exchange rate of the Australian horse is the price of 1 unit (1 dollar) expressed in terms of another specie. The 2 most common legal communitys of the exchange rate used in Australia are:
*The Exchange rate against the US dollar
*The trade-weighted index (TWI)
The bill against the US dollar is important because trading of the Australian dollar in the Forex detectet is highly concentrated against the US dollar.
The measure of the TWI is a overmuch more accurate one. The TWI comprises of 26 unlike trading partners of Australia. Each country has a relative care in the TWI according to the amount of trade it does with Australia. This allows the currency to be measured against many different currencies which give a much more general and accurate exchange rate of the currency as it is an average of all the countries with an impact on the Australian economy. When the AUD is only measured against 1 currency (the US dollar), it stooge be very misleading because it may be locomote against that particular currency but rising against another.
Table 1: TWI Weights
As at September 1997
Currency Weight (%)
Japanese yen 17.9620
US dollar 16.2446
NZ dollar 6.9162
South Korean won 6.7668
Chinese renminbi 5.4598
UK pound 5.2845
New Taiwan dollar 4.3069
Singapore dollar 4.2186
German mark 3.9374
Indonesian rupiah 3.
6225
Malaysian ringgit 2.9571
Hong Kong dollar 2.8021
Italian lira 2.5644
Thai baht 2.0273
French franc 1.9487
Canadian dollar 1.7124
PNG kina 1.6493
Indian rupee 1.4501
Swedish krona 1.2040
Belgian franc 1.1802
Philippine peso 1.0560
UAE dirham 1.0280
South African rand 1.0084
Netherlands guilder 0.9831
Saudi Arabian riyal 0.9158
Swiss franc 0.7938
Total 100.0000
Supply and Demand Factors
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