Question: (21.7) There is a fixed exchange rate system between the United States of Albion (U.S.A.) and the Republic of Oz and interest rates in the

(21.7) There is a fixed exchange rate system between the United States of Albion (U.S.A.)

and the Republic of Oz and interest rates in the U.S.A. are always 2% higher than those in Oz due to a constant risk premium. Does UIP hold? What is the relationship between the monetary policy of the two economies?

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