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The Foreign Exchange Market is the buying and selling of various currencies The exchange rate of the Australian dollar is the price of 1 unit 1 dollar expressed in terms of another currency The 2 most common measures of the exchange rate used in Australia are The Exchange rate against the US dollar The trade-weighted index TWI The measure against the US dollar is important because trading of the Australian dollar in the Forex market is highly concentrated against the US dollar The measure of the TWI is a much more accurate one The TWI comprises of 26 different trading partners of Australia Each country has a relative share 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 can be very misleading because it may be falling against that particular currency but rising against another Table 1 TWI Weights As at September 1997 Currency Weight Japanese yen 179620 US dollar 162446 NZ dollar 69162 South Korean won 67668 Chinese renminbi 54598 UK pound 52845 New Taiwan dollar 43069 Singapore dollar 42186 German mark 39374 Indonesian rupiah 36225 Malaysian ringgit 29571 Hong Kong dollar 28021 Italian lira 25644 Thai baht 20273 French franc 19487 Canadian dollar 17124 PNG kina 16493 Indian rupee 14501 Swedish krona 12040 Belgian franc 11802 Philippine peso 10560 UAE dirham 10280 South African rand 10084 Netherlands guilder 09831 Saudi Arabian riyal 09158 Swiss franc 07938 Total 1000000 Supply and Demand Factors We are used to thinking of a cook as supply and as a customer in a restaurant and demand but in the Forex Market the same person represents both supply and demand
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