We observed in the text that fixed exchange rate systems can result not in absolutely fixed exchange rates but in narrow bands within which the exchange rate can move For example, the gold points (mentioned in footnote 17) produced such bands under a gold standard (Typically those bands were on the...

Yes there is some room within a target zone for domestic interest rates to move i ...

We observed in the text that fixed exchange-rate systems can result not in absolutely fixed exchange rates

Question:

We observed in the text that “fixed” exchange-rate systems can result not in absolutely fixed exchange rates but in narrow bands within which the can move. For example, the gold points (mentioned in footnote 17) produced such bands under a gold standard. (Typically those bands were on the order of plus or minus 1 percent of the “central” exchange parity.) To what extent would such bands for the allow the domestic interest rate to move independently of a foreign rate? Show that the answer depends on the or term of the interest rate. To help your intuition, assume plus or minus 1 percent bands for the and consider, alternatively, rates on three-month deposits, on six-month deposits, and on one-year deposits. With such narrow bands, would there be much scope for independence in ten-year loan rates?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...