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Assume Saudi Arabia to be home and US to be the foreign economy. Suppose that the real exchange rate q (riyal per dollar) between Saudi
Assume Saudi Arabia to be home and US to be the foreign economy. Suppose that the real exchange rate q (riyal per dollar) between Saudi Arabia and US is 1.2. Inflation rate in the US is 6% and inflation rate in Saudi Arabia is 4%. Given a 15% speed of convergence in the real exchange rate, what would be the expected rate of change in the nominal exchange rate (riyal per dollar)?
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