If there is a change in the exchange rate between Australian Dollar and Papua New Guinea kina from A$1=K0.25 to A$1=PGK0.35. Which or of the following is true?

Question

A) Papua New Guinea's import from Australia is expensive
B)Papua New Guinea's export to Australia is expensive
C) Australia's export to Papua New Guinea is expensive
D) Australia's import from Papua New Guinea is expensive
Which is the correct answer?

Answer 1

To analyze the effect of the change in the exchange rate from A$1 = K0.25 to A$1 = K0.35, we look at how these changes influence trade between the two countries.

1. Initial exchange rate: A$1 = K0.25 means that for every Australian dollar, you get 0.25 kina.
2. New exchange rate: A$1 = K0.35 means that for every Australian dollar, you now get 0.35 kina.

Analysis:

• Papua New Guinea's imports from Australia:

  • With the exchange rate increasing from K0.25 to K0.35 for A$1, Papua New Guinea pays more kina for the same amount of Australian goods.
  • Thus, imports from Australia become more expensive for Papua New Guinea.

• Papua New Guinea's exports to Australia:

  • The kina remains the same in value in relation to the Australian dollar. However, since PNG receives more kinain exchange for its exports, its goods are effectively cheaper in Australia. Therefore, PNG exports should not become more expensive but rather more favorable or cheaper.

• Australia's exports to Papua New Guinea:

  • Australian goods become more expensive for the PNG market since they now require more kina.

• Australia's imports from Papua New Guinea:

  • With PNG's exports to Australia being cheaper (and no changes in the currency's value for goods), Australian imports don't particularly become expensive due to the change in exchange rate.

Conclusion:

Based on this analysis, the correct answer is:

A) Papua New Guinea's import from Australia is expensive.