The following graph plots the percentage change in the spot rate for a foreign currency along the horizontal axis, while measuring the interest rate differential (between a home country and a foreign country) along the vertical axis. in refers to the interest rate in the home country, while if refers to the interest rate in a foreign country. On the following graph, use the blue line (circle symbol) to plot the combinations of percentage change of the foreign currency spot rate and interest rate differential that are consistent with the international Fisher effect (IFE) theory. ih - if (%) 7 6 5 IFE Line 4 3 2 1 0 -1 -2 -3 -4 4 5 6 -5 -7 -7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 67 Change in Foreign Currency Spot Rate (%) ?
The following graph plots the percentage change in the spot rate for a foreign currency along the horizontal axis, while measuring the interest rate differential (between a home country and a foreign country) along the vertical axis. in refers to the interest rate in the home country, while if refers to the interest rate in a foreign country. On the following graph, use the blue line (circle symbol) to plot the combinations of percentage change of the foreign currency spot rate and interest rate differential that are consistent with the international Fisher effect (IFE) theory. ih - if (%) 7 6 5 IFE Line 4 3 2 1 0 -1 -2 -3 -4 4 5 6 -5 -7 -7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 67 Change in Foreign Currency Spot Rate (%) ?
Chapter4: Exchange Rate Determination
Section: Chapter Questions
Problem 1BIC
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Transcribed Image Text:The following graph plots the percentage change in the spot rate for a foreign currency along the horizontal axis, while measuring the interest rate
differential (between a home country and a foreign country) along the vertical axis. in refers to the interest rate in the home country, while if refers to
the interest rate in a foreign country.
On the following graph, use the blue line (circle symbol) to plot the combinations of percentage change of the foreign currency spot rate and interest
rate differential that are consistent with the international Fisher effect (IFE) theory.
ih - if (%)
7
6
5
IFE Line
4
3
2
1
0
-1
-2
-3
-4
4 5 6
-5
-7
-7
-6
-5 -4 -3 -2 -1
1 2 3 4 5
67
Change in Foreign Currency Spot Rate (%)
?
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