i. As we have discussed, the Fed engaged in significant rate cuts and QE in response to COVID-19.

Use the left graph below. Ceteris paribus (meaning ignore for the moment the ECB), show the

expected effect on the value of the USD/EUR exchange rate under such monetary stimulus. Provide a

brief intuitive description below the graph.

ii. Given similar growth concerns in Europe, the ECB also engaged in accommodative policy. Copy

your results from the left graph and show on the right graph the effect under a scenario where the ECB

similarly engages in stimulus. Describe the additional effect on the USD/EUR exchange rate? Provide

a brief intuitive description below the graph.

iii. At the very bottom, comment briefly on how the Fed's vs. ECB's anticipated policies going

forward might affect the USD vs. EUR.

USD/EUR USD/EUR EI 0 0 R USD Return USD Return Mi/pl Real USD Real USD Money Money Holdings Holdings