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Compare Australia’s exchange rate system to that of either Singapore or Hongkong

• Using YOUR OWN words: "Compare Australia?s exchange rate system to that of either Singapore or Hong Kong" The answer should reference based from the following links below: Australia: http://www.rba.gov.au/Education/exchange_rate.html, and Hong Kong: http://www.info.gov.hk/hkma/eng/public/qb200108/fa03.pdf, or Singapore: http://www.mas.gov.sg/resource/download/ededu2.PDF. *Answer this question in essay format and not exceed than 500 words* cheers, Maietto

• Answer:

  Dear Maietto, As requested, here are 493 words of my own in essay format comparing Australia's exchange rate system to that of Hong Kong. I worked as fast as I could. Sincerely, Wonko In 1983, Australia and Hong Kong exchanged roles regarding how the exchange rate for their currencies would be determined. The transition from a fixed exchange rate to a floating exchange rate resulted in a 38% decline in the value of Australia's currency three years after the currency was floated. In Hong Kong, a multiyear period of currency depreciation resulted in a desire to implement a fixed exchange rate. In both cases, the countries traded stability of exchange rates against domestic control of interest rates and money supply. Curiously, at almost exactly the same time, the two countries made opposite choices. Prior to late 1983, Australia practiced a highly interventionist approach to exchange rate determination managed by the Australian Reserve Bank. Until November of 1976, Australia fixed its exchange rate with respect to a particular currency or a trade weighted index of currencies. After November of 1976, Australia switched to a pegged system, which allowed limited exchange rate fluctuations. In December of 1983, Australia opted for a floating exchange rate, which allowed the foreign-exchange market to determine its currency's exchange rate. As a result, Australia gained control over its interest rates and domestic money supply because it no longer had to manipulate them to control its currency's exchange rate. In contrast, in response to an increasingly rapid drop in its currency's value resulting from the uncertain outcome of negotiations between China and Great Britain regarding its status, Hong Kong adopted a fixed exchange rate. Like Australia from November 1971 to September 1974, Hong Kong elected to peg its currency to the United States dollar. Although Hong Kong has successfully maintained its currency at the rate of HK$7.80 to the US dollar, the absence of controls on capital flows results in Hong Kong's domestic interest rates being primarily determined by the United States. As a result, domestic interest rates may not match locally prevailing economic conditions, leading to broader swings in inflation rates than most developed countries are accustomed to. However, as an economy based primarily on trade, the importance of currency value stability outweighs the disadvantages of its lack of control over other aspects of its domestic economy. In conclusion, the current approaches by Australia and Hong Kong to establishing their currencies' exchange rates are opposite. Differences in the economic development of the two countries led to different choices, with Australia switching from a fixed exchange rate to a floating exchange rate and Hong Kong switching from a floating exchange rate to a fixed exchange rate. As a relatively large economy that is not exclusively trade dependent, the advantages of having control over the domestic money supply and interest rates outweighs the disadvantage of a potentially volatile exchange rate for Australia. In contrast, the small, heavily trade-dependent economy of Hong Kong makes stability of its currency paramount to its economic success. Therefore, despite having made completely opposite choices, both countries appear to have made the right choice in light of presently accepted economic theory.