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14. Assume you fully believe that any movements in the exchange rate can be predicted using the inflation rate differential between countries (i.e., you believe in the
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- The U.S. economy is on track of sustainable growth now. This leads to fears of inflation and likely action by the Federal Reserve to raise interest rates to contain inflation. Based on the asset market(pricing) approach, the U.S. dollar will become weaker. True Falsearrow_forward9arrow_forwardSuppose that the nominal interest rate in the euro area is 2%, and the nominal interest rate in Switzerland is 4%. Suppose inflation is expected to be 0.5% in the euro area. If the Fisher Effect holds, then the real interest rate in the euro area is approximately the expected inflation in Switzerland is O2%; impossible to determine. 1.5%; 2.5% 2.5%; 0.5% None of the above is correct. 1.5%; 0.5% andarrow_forward
- Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect a. political instability in the United States. b. a worsening of the U.S. balance of payments. c. an appreciation of U.S. currency. d. that a "dirty float" will emerge.arrow_forward6. How does the deposit insurance help the depositors? What are the pitfalls of the scheme? Can it help stabilizing Hong Kong dollar exchange rate in the face of regional and global financial crises?arrow_forwardPlease quickly and with neat explanation.arrow_forward
- All of the following typically tend to be short-term determinants of exchange rates between currency pairs, except? (a) stock market performance; (b) interest rate differentials; (c) market momentum; (d) relative inflation expectations in the pair of countries.arrow_forwardInternational Finance (chapter 21) Question Explain how each of the following will affect the relative values of the dollar and the French franc: Income growth higher in the United States than in France. Inflation higher in France than in the United States. A real interest rate higher in the United States than in France PLease solve 1arrow_forward1.Assume that the yen is selling at a forward discount in the forward-exchange market. Then, most likely a . interest rates are declining in Japan. b . this currency is gaining strength in relation to the dollar. c . interest rates are higher in Japan than in the United States. d . this currency has low exchangerate risk.arrow_forward
- Can you help me with this question?arrow_forwardA Chinese investor invests in U.S. Treasury bills. If the Chinese renminbi (RMB) appreciates during the holding period against the U.S. dollar (USD), this investment increases in value but default risk remains unchanged. declines in value and decreases in default risk. declines in value but default risk remains unchanged. increases in value and decreases in default risk.arrow_forward6) Suppose that the European central bank increased money supply right after you bought the European financial assets. How that change might affect the expected return you will get at the end of the period as an American investor? (Use graphs)arrow_forward
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