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Countries A and B have relative stable output growth rates, gA=3.50% and gB=1.50%, and money supply growth rates, A=4.50% and B=3.00%. The nominal interest rate
Countries A and B have relative stable output growth rates, gA=3.50% and gB=1.50%, and money supply growth rates, A=4.50% and B=3.00%.
The nominal interest rate on the currency-A-denominated bonds is iA=5.00%.
Use the monetary approach to exchange rate to determine the following.
The expected world real interest rate, r
The nominal interest rate on currency-B-denominated bonds, iB
The expected depreciation rate of currency A relative to currency B,
Currency A is expected to ? against currency B.
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