Question: [1S points total, 5 points each] Consider the asset approach to exchange rates (our theory to determine short run exchange rates) for two countries, China
[1S points total, 5 points each] Consider the asset approach to exchange rates (our theory to determine short run exchange rates) for two countries, China and Thailand. The current spot exchange rate is 4 Thai baht per Chinese yuan, Ebaht/yuan 4. Analyze the following situations. For each situation, explain the changes in each of the following from the perspective of a Thai investor: (i) expected rate of return on Thai deposits, (ii) expected rate of return on Chinese deposits, and (iii) the spot exchange rate. The expected future exchange rate increases, E baht/yuan>4 and interest rates in both countries remain unchanged. a. The interest rate on Chinese and Thai deposits increases by the same amount and the expected exchange rate remains unchanged. b. The interest rate on Chinese deposits decreases, Thai interest rates remain unchanged, and the expected exchange rate is unchangecd c
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