First generation models of BOP crises. Consider a small open economy that has a fixed exchange rate regime. The money demand is given by mdp=i and money supply is msd+r, where p is local price, 1 >0,i is the local interest rate, d is domestic credit (or government bonds), r is the level of reserves and s is the exchange rate. All variables are in logs. The uncovered interest rate parity (UIP) and the purchasing power parity hold (PPP). Show that the fixed exchange rate depends on the level of government bonds, reserves, foreign price and foreign interest rate. Discuss why an abandonment of the fixed exchange rate is inevitable in this model