If exchange rate for euro were to change from 0.6 euro per AUD, to 0.8 euro per AUD, would the Australian balance of payments improve? Explain. 

 

Australian balance of payments will improve improve, If exchange rate for euro were to change from 0.6 euro per AUD, to 0.8 euro per AUD.

Step-by-step explanation

As Euro is losing value when the exchange rate increasing from 0.6 euro per Australian dollar to 0.8 euro per Australian dollar. The Australian dollar is gaining value in this situation the balance of payment of the Australia will improve.

The receivable of the Australia will increase and Liabilities will decrease in this case. The net balance of the of the payment will improve.

Form example

Liabilities = Euro 480 millions

Receivable = AUD 980 millions

Exchange rate Euro 0.6 per AUD

Liabilities = Euro 480 millions / 0.6 Euro per AUD = AUS$800 million

Receivable = AUD 980 millions

Balance of payment = AUD 980 millions - AUD 800 million = AUS $180 million

Exchange rate Euro 0.8 per AUD

Liabilities = Euro 480 millions / 0.8 Euro per AUD = AUD 600 million

Receivable = AUD 980 millions

Balance of payment = AUD 980 millions - AUD 600 million = AUD 380 million

Hence balance of payment is improved from AUD 180 to AUD 380 as the exchange rate increased from 0.6 euro per Australian dollar to 0.8 euro per Australian dollar