Economics of Money and Banking Short Answer Questions - Essay Example

Floating is done in two major ways. These are the selling of Australian dollar and the buying of other foreign currencies; mostly the United States Dollar. Whenever the Reserve Bank of Australia wants to support the exchange rate against depreciation, the Reserve Bank of Australia sells foreign currency and in return buys Australian dollars. When the needed arises for appreciation to be resisted, the Reserve Bank does the opposite by buying foreign exchange and selling the Australian dollars. This is basically how the reserve bank intervenes in the foreign exchange.

The reason behind the intervention described above is basically to ensure that the Australian dollar gets a stronger value in the foreign exchange market. Sustaining the value of the Australian dollar is very important and the need for it cannot be underestimated. This is because on the foreign exchange market and in all other major investment transactions that take place in Australia, the value of the Australian dollar plays a highly instrumental role in determining the amount of money investors spend in transactions. 2) What are the main objectives of monetary policy in Australia?

Explain how monetary policy is implemented in Australia and how changes in monetary policy are transmitted through the economy to affect the overall level of economic activity Monetary policy basically refers to the manipulation of short-term trade conditions; mostly interest rates to help in the realization of domestic policy objectives. This means that monetary policy is put in place to favor the successful implementation of domestic economic policies. In Australia, monetary policy is implemented by the Reserve Bank.

The implementation of monetary policy is done through a number of ways in several countries. In Australia however, the major monetary implementation is done by managing interest rate in such a way that it responses to international monetary pressure and shock. This