9. On June 20, 2007, John Authers, investment editor of the Financial Times, wrote the following in his column “The Short View”:

The Bank of England published minutes showing that only the narrowest possible margin, 5–4, voted down [an interest] rate hike last month. Nobody foresaw this. . . .

The news took sterling back above $1.99, and to a 15-year high against the yen.

Can you explain the logic of this statement? Interest rates in the United Kingdom had remained unchanged in the weeks since the vote and were still unchanged after the minutes were released. What news was contained in the minutes that caused traders to react? Explain using the asset approach.

10. We can use the asset approach to both make predictions about how the market will react to current events and understand how important these events are to investors. Consider the behavior of the Union/Confederate exchange rate during the Civil War. How would each of the following events affect the exchange rate, defined as Confederate dollars per Union dollar, EC$/$?

a. The Confederacy increases the money supply by 2,900% between July and December 1861.

b. The Union Army suffers a defeat in Battle of Chickamauga in September 1863.

c. The Confederate Army suffers a major defeat with Sherman’s March in the autumn of 1864.