Question
1.Explain how a central bank might intervene in money markets to lower the domestic nominal interest rate without changing the exchange rate. 2 Is there
1.Explain how a central bank might intervene in money markets to lower the domestic nominal interest rate without changing the exchange rate. 2 Is there a limit to how far the central bank can lower interest rates while maintaining the nominal exchange rate? Explain your answer. 3.HKD is fixed to USD. If price level in the U.S. rises slower because of slower monetary growth in the U.S., explain how the HKMA have to respond (in the absence of any other government intervention). For your argument, use UIP condition and an appropriate condition linking interest rates and inflation rates
4.HK bonds bear greater risk than bonds in other countries now. Explain how this credit downgrade impacts HK's economy under a floating FX rate regime. Explain how the HKMA might intervene in money markets to maintain its FX peg. 5. Observations: High FDI due to high interest rate (11.25% in Mexico vs. 5.5% in US) US Tariffs on Chinese goods is 25% vs. NAFTA Tariffs of 2.5% Market expects MXN to continue to appreciate Explain why Mexican output is increasing despite stronger Peso (relative to USD) using AA-DD-XX graph.
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