Question 4.

PART 2 EXCHANGE RATE BEHAVIOUR If 4 How might the relatively high levels of inflation and interest rates in Thailand affect the baht's value? (Assume a constant level of Australian inflation and interest rates.) If the spot exchange rate is A$0.022 and the inflation difference between Thailand and Australia is 5 per cent in question (3), what should be the expected exchange rate in the market? Explain. How do you think the loss of confidence in the Thai baht, evidenced by the withdrawal of funds from Thailand, will affect the baht's value? Would Aussie Blades be affected by the change in value, given the primary Thai customer's commitment? 5 Assume that Thailand's central bank wishes to prevent a withdrawal of funds from its country in order to prevent further changes in the currency's value. How could it accomplish this objective using interest rates