Factors Affecting the Exchange Rate of Aud/Usa Essay Example

currency exist: "Hard Currency" and "Soft Currency". Hard Currency is known for its stability and is commonly used in international transactions.

This paragraph discusses the concept of hard currency and soft currency. It states that hard currency usually comes from developed countries such as the USA, Japan, and the UK. Hard currency is defined as stable and convertible currency that enjoys the confidence of investors and traders. It serves as a means of payment settlements due to its lack of sharp exchange rate fluctuations. On the other hand, soft currency is described as weak and unstable, making it rarely used as a medium of payment in international transactions.

This currency usually originates from developing countries such as Indonesia - Rupiah (IDR), and so on. According to BusinessDictionary (2010), "Soft Currency is a Currency belonging to a small, weak, or wildly fluctuating economy and which, therefore, is not in favor with foreign exchange dealers." There are three main types of Exchange Rate Systems in the world: Fixed Exchange Rate System, Floating Exchange Rate system (which includes Freely Floating and Managed Float), and Pegged Exchange Rate System. Among these systems, the first one is the Fixed Exchange Rate System.

During the Bretton Woods era, an agreement was signed by 29 countries stating that the foreign exchange rate between countries in the IMF must be fixed. This exchange rate system ensured a fixed exchange rate, eliminating the need to consider market equilibrium. Although demand and supply usually determine the equilibrium, changes in these factors no longer impact the exchange rate under this system.