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FIND a newpaper article on Australian wine industry and answer five questions(use macroeconomic model/diagram to support) - Assignment Example

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Xxxxxxxxxxxx Xxxxxxxxxxxx Xxxxxxxxxxxxx 2 November 2011 http://www.theage.com.au/business/strong-a-hangover-for-wine-20110824-1ja8z.html The article highlights the adverse effect of a strong Australian Dollar on the Australian wine industry. It enlists factors such as unfavorable exchange rates and global economic downturn as the reasons for the plight of the wine industry…
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FIND a newpaper article on Australian wine industry and answer five questions(use macroeconomic model/diagram to support)
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Download file to see previous pages An attempt shall also be made to predict the course of events in the immediate future. The key economic argument that is presented in the article is that of the Balance of Payments and Exchange Rate Determination. Balance of payments is the sum of current account and capital account. The current account measures the exchange of real goods and services as well as transfer payments – things consumed in the current period. The capital account measures stocks, bonds and capital abroad. An exchange rate is the amount of currency you would pay to receive a given amount of another. In flexible exchange rate regime like Australia, exchange rates are determined by global supply and demand for currencies. The figure below shows the determination of the floating exchange rates in relation to British Pounds– The article gives its perspective on challenges faced by the wine industry. It tells that global financial uncertainty and volatility have led to the current strengthening of Australian dollar. This has led to the increase in export prices and hence decline in wine sales. The highlight of this article is the reduction in total sales by around $14.4 million. The reason is attributed to unfavorable exchange rates. ...
and U.S. Australia has a very low debt-to-GDP ratio and a strong fiscal position. These factors increase the demand for the dollar as shown by the figure below. As it can be seen, with increase in demand there is an increase in the value of dollar. But there is an argument which can be presented here is that there is an increase in sales in U.K. despite the strong dollar. The reason can be attributed to the quality of Australian wine, excellent marketing and unwillingness of U.K. consumers to change their drinking habits. There are many macro-economic implications of the news presented by the article. It is mentioned that the Australian wine company has decided to shift its wine packaging and bottling process overseas. This will result in loss of jobs and also loss of revenue for the Australian government. The strengthening of dollar can lead to increase in imports and hence a trade deficit. The solution for wine industry may lie in increasing the supply and hence neutralizing the effect of increasing the demand of dollar. The government also needs to respond to the needs of wine industry before Australian consumers become used to imported ...Download file to see next pages Read More
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