Suppose the Central Bank of Eastlandia follows a managed float exchange rate system. At the same time, the economy of Eastlandia runs a current account deficit and finances the deficit through short term capital flows from the rest of the world.

a. if the interest rates in the rest of the world are raised by Central banks what would be the impact on the balance of payments and exchange rate of Eastlandia? b. What kind of interventions the Central Bank of Eastlandia can make to deal with the above situation? Explain.