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(a) Explain what would happen to the exchange rate if the return on foreign assets increases, everything else held constant. ( 3 marks ) (b)

(a) Explain what would happen to the exchange rate if the return on foreign assets increases, everything else held constant. (3 marks)

(b) Now assume that the central bank wishes to fix the exchange rate at its original level. Describe the type of foreign exchange intervention that the central bank would undertake. (3 marks)

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