15 Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the interest

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15 Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the interest rate on a one-year German bond is 7 percent and the interest rate on a one-year U.S. bond is 4 percent.

a Suppose that you expect the exchange rate in one year to be 1.2 dollars per euro. What is the exchange rate today?

b Suppose that relative purchasing-power parity holds and that the inflation rate in Germany is expected to be 2 percent over the next year.

What is the expected inflation rate in the United States?

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MandB 3

ISBN: 978-1285167978

3rd Edition

Authors: Dean Croushore

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Question Posted: Nov 13, 2024 01:00 AM

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15 Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the interest

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