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Country X and Country Y are trading partners each with a current account balance of zero. Country X's currency is the dollar, and Country Y's
Country X and Country Y are trading partners each with a current account balance of zero. Country X's currency is the dollar, and Country Y's currency is the peso.
- If interest rates in Country X increase, will the immediate consequence be a current account deficit, surplus, or no change for Country X? Explain.
- Draw a graph of the foreign exchange market for the dollar of Country X. Illustrate the effect of the increase in interest rates in Country X on the value of its dollar compared to the peso of Country Y.
- Now if Country Y enters a severe recession, what will be the impact on demand for the dollar of Country X? Explain.
- Based on part (c), what will be the effect on the value of the dollar of Country X compared to the peso of Country Y?
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Entrepreneurship
Authors: Andrew Zacharakis, William D Bygrave
5th Edition
1119563097, 9781119563099
