Question: Currently, one Dystopian Dinar (DD) is exchanged for $5, while annual interest rates for both Dystopia and the USA equal 5%. However, political instability in

Currently, one Dystopian Dinar (DD) is exchanged for $5, while annual interest rates for both Dystopia and the USA equal 5%. However, political instability in Dystopia leads to huge capital outflows to the USA. As a result, the countrys monetary authorities expect an annual depreciation of the DD vis--vis the $ by 10%.

Assuming that Dystopias Central Banker can control the market interest rate, how she/he will react in order to stabilize the spot exchange rate?

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