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Assume that United States residents invest heavily in the U.K government and stocks. In addition, U.K. residents invest heavily in the United States. Because your
Assume that United States residents invest heavily in the U.K government and stocks. In addition, U.K. residents invest heavily in the United States. Because your firm imports goods from U.K., you are assigned to forecast the value of GBP against the USD - i.e., you forecast St(GBPUSD). Explain how each of the following conditions will affect the value of the GBP against the USD, holding all other things equal. (Please plot a figure to explain each condition) A) The U.K. inflation has increased substantially, while inflation in the U.S. remains stable. B) The U.K. nominal interest rates may increase substantially, while the U.S. interest rates remain stable. C) The income level in the U.K. may increase substantially, while the income level in the U.S. has remained unchanged D) The U.S. consumers buy more imported goods from U.K. E) The political and policy uncertainty in the U.K. is high and maybe going to get worse. You also assume that the U.K. is not a safe haven. Assume that United States residents invest heavily in the U.K government and stocks. In addition, U.K. residents invest heavily in the United States. Because your firm imports goods from U.K., you are assigned to forecast the value of GBP against the USD - i.e., you forecast St(GBPUSD). Explain how each of the following conditions will affect the value of the GBP against the USD, holding all other things equal. (Please plot a figure to explain each condition) A) The U.K. inflation has increased substantially, while inflation in the U.S. remains stable. B) The U.K. nominal interest rates may increase substantially, while the U.S. interest rates remain stable. C) The income level in the U.K. may increase substantially, while the income level in the U.S. has remained unchanged D) The U.S. consumers buy more imported goods from U.K. E) The political and policy uncertainty in the U.K. is high and maybe going to get worse. You also assume that the U.K. is not a safe haven
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