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Assume that the Danish monetary authorities have adopted a tight target zone exchange rate system. Let C be the central parity rate in Danish Krone
Assume that the Danish monetary authorities have adopted a tight target zone exchange rate system. Let "C" be the central parity rate in Danish Krone per euro C-DKK7.45/EUR. The monetary authorities need to determine the exchange rate of the upper and lower intervention limit such as the band is 1% band around the central parity rate. The computation must guarantee that the width of the band is the same, no matter how the exchange rates were expressed (in DKK/EUR and EUR/DKK). Assuming that "k" is the variable to solve to determine the upper and lower intervention limit. The upper intervention limit is defined as C*(1+k) the lower intervention limit is defined as C/(1+k). How would you set up the equation to solve for the upper and lower intervention limit (Hint: you are not expected to solve the equation for "k" you only need to set it up)? (3 points) 2%*C-C'{1+k)+C/(1+k) 1%*C-C'(1+k)+C/(1+k) 19C-C'(1+k)-C/(1+k) O 2%*C-C'(1+k)-C/(1+k) 0 : C-C*(1+k)-C"(2-4)
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