If there is a change in the exchange rate between Australia Dollar and Papua New Guinea Kina from A$1= PGK0.25 to A$1= PGK0.35.

Question

Which of the following is true?
A. PNG's import from Australia is expensive.
B. PNG's export to Australia is expensive.
C. Australia's export to PNG is expensive
D. Australia's import from PNG is expensive.

Choose only one answer

Answer 1

The correct answer is C. Australia's export to PNG is expensive.

When the exchange rate changes from A$1 = PGK0.25 to A$1 = PGK0.35, it means that the Papua New Guinea Kina has depreciated relative to the Australian Dollar. As a result, it takes more Kina to buy the same amount of Australian Dollars. This makes imports from Australia more expensive for Papua New Guinea, while exports from Papua New Guinea to Australia become cheaper for Australians.