Please answer each of the following questions in 3–5 lines. No credit will be given without a proper explanation.

a) Australia

is a major exporter of iron ore, coal, and agricultural products. If the global

price of iron ore rises, for example, due to an increase in foreign buyers

(e.g., a surge in Chinese demand), what will be the impact on the Australian

dollar? Assume that foreign buyers need to use Australian dollars (AUD) to

purchase Australian-made products.

b) Prior to

COVID-19, the Australian economy was one of the strongest in the world, as

Australia had not been severely affected by major financial or economic crises.

This strong economic performance attracted an increase in foreign direct

investment (FDI) and portfolio investment in Australia. If we assume that these

investments are made using Australian dollars, what is the impact of increasing

capital inflows into Australia on the exchange rate?