inversely related to u. s. interest rates. evidence suggests that the response of net exports to interest rates ( via exchange rates ) has become larger over time. the open economy version of the monetary policy transmission mechanism involves three steps : from u. s. interest rates to nominal exchange rates ; from nominal exchange rates to the absolute and relative prices of imports and exports ; and from the prices of imports and exports to the real volumes of imports and exports and domestic prices. from u. s. interest rates to the exchange rate we begin with the link between interest rates in the u. s. and exchange rates. a policy - initiated increase in u. s. short - term rates would, as noted above, generally result in higher u. s. long - term interest rates. at initial levels of foreign interest rates and equity prices, the movement in u. s. rates would make dollar - denominated assets more attractive compared to foreign currency - denominated assets, resulting in shifts in asset demands and either incipient or actual cross - border capital inflows to the u. s. and outflows from foreign economies. these shifts result in an appreciation of the dollar. indeed, the single most important determinant of short - term movements in exchange rates is the change in real interest rate differentials across countries. a 1 % point increase in u. s. long - term ( 10 - year ) interest rates, with unchanged foreign rates, will typically induce a 10 % increase in the u. s. trade - weighted exchange rate. after the initial jump in the dollar, there will be an expectation of a decline in the dollar by about 1 % each year for the next 10 years. the result of the rise in the dollar and the expectations of gradual reversal is what is referred to as international interest rate parity. the holding period yields of u. s. and foreign assets, each denominated in their home currency, are thereby equated, eliminating the incentive for further changes in asset demands or capital flows. that is, the higher interest rate yield on u. s. assets ( measured in dollars ) is just offset by the expected depreciation in the value of the asset, measured in the foreign currency. this is the mechanism by which holding period yields are equated across countries via international capital flows. by the end of the 10 - year period, according to this framework, both interest rates and exchange rate would have returned to their original

##5, papua new guinea introduced its own currency, kina and toea. the then minister for finance mr julius chan ( now sir julius ) named his son toea, at the launching of the kina and toea. the kina and toea is a strong partnership that has traveled the trek and withstood its own challenges. on the physical and domestic front, our banknotes issue began with paper substrate in 1973 but since 1991 we have moved on to introducing polymer notes, the second country outside australia to adopt the new technology. as we have seen the benefits of polymer : cost effectiveness, durability and great ability to withstand counterfeiting accrue to the bank and the community ; we have steadily increased the number of denominations issued on polymer substrate. we have retained the traditional and cultural designs on the k2, k5, k10, k20 and k50 to notes to continue to remind us of our rich cultures and traditions. the k100 note depicts our rich natural resources and the transition in economic growth and technological developments. the front of the notes depict the national crest – the styled bird of paradise sitting atop the kundu and spears and the national parliament depicting nation building and nationhood. our coins depict the rich fauna of the country ( except for the 50t which we have issued to commemorate special events ). the turtle on the 5 toea, the cuscus on the 10 toea, the muruk on the 20t and the 2 crocodiles on the k1. 00 were especially coined to depict the rich and unique animal world of papua new guinea. of the 2 crocodiles on the kina coin, one is said to be a fresh water crocodile and the other salt water. this family of coins will now for the first time be joined by a k2. 00 commemorative circulation coin which will circulate concurrently with the k2. 00 banknote. it is the bank ’ s role to ensure public acceptability and confidence in our currency is maintained by ensuring the design and appearance are acceptable and longitivity and sufficient stocks of the notes and coins are maintained for our public needs. on the exchange rate front, the kina has endured its own challenges. it was introduced in 1975, it has been pegged, it has been placed in the basket of currencies and it was floated in 1994, all before it reached the age of 21 years. it is still going strong. what a journey!!! ladies and