Answer the following questions regarding the effects of indirect intervention.

Suppose that the government of Chile reduces one if its key interest rates. The values of several other Latin American currencies are expected to change substantially against the Chilean peso in response to the news.

a. Why could other Latin American currencies be affected by a cut in Chile's interest rates? (10 points)

b. How would the central banks of other Latin American countries likely adjust their interest rates? How would the currencies of these countries respond to the central bank intervention?