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Assume that the Central Bank of China decides to stabilize its exchange rate in 1 0 yuan per 1 USD. If the USD interest rate

Assume that the Central Bank of China decides to stabilize its exchange rate in

10

yuan per

1

USD. If the USD interest rate is

5 %

how much should the yuan interest rate be so as the opportunities for investors for profitable capital arbitrage are eliminated? In which case investors would not be sure on where to invest their money?

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