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Agricultural Economics – Agricultural Economics – Exchange RatesExchange Rates

AS90651 Explain how market AS90651 Explain how market forces affect supply and demand forces affect supply and demand of primary products (4 external of primary products (4 external

credits)credits)

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SummarySummary

New Zealand is the furthermost New Zealand is the furthermost country from the rest of the world country from the rest of the world ( i.e. the Northern Hemisphere)( i.e. the Northern Hemisphere)

And is quite smallAnd is quite small This means that as a country, our This means that as a country, our

economy depends on the needs and economy depends on the needs and wants of other countrieswants of other countries

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A High New Zealand DollarA High New Zealand Dollar

When the New Zealand dollar is When the New Zealand dollar is valued highly against the US dollar valued highly against the US dollar then:then: Imports are cheaper into the country. Imports are cheaper into the country.

This is because we can get more for our This is because we can get more for our money.money.

Exporters don’t get as much money as Exporters don’t get as much money as the people who buy their products can the people who buy their products can not buy as much, so they don’t.not buy as much, so they don’t.

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What this means for farmersWhat this means for farmers

Fertiliser, tractors and other Fertiliser, tractors and other machinery imported into the country machinery imported into the country cost less so they could buy morecost less so they could buy more

They don’t make as much money as They don’t make as much money as their products (wool etc) aren’t worth their products (wool etc) aren’t worth as muchas much

Overall farmers prefer to have a low Overall farmers prefer to have a low NZ dollarNZ dollar

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A Low New Zealand DollarA Low New Zealand Dollar

When the New Zealand dollar is When the New Zealand dollar is valued low against the US dollar valued low against the US dollar then:then: Imports are more expensive to get into Imports are more expensive to get into

the country. This is because we get less the country. This is because we get less for our money.for our money.

Exporters earn more as the people who Exporters earn more as the people who buy their products can buy more, so buy their products can buy more, so they do.they do.

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What this all meansWhat this all means

Yesterday the $1NZ was worth Yesterday the $1NZ was worth $0.615US$0.615US

A few months ago $1NZ was worth A few months ago $1NZ was worth $0.71US$0.71US

This is good for farmers as their This is good for farmers as their products earn more moneyproducts earn more money

WorksheetsWorksheets

$NZ vs $US over last 10 years$NZ vs $US over last 10 years

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