Suppose that you live in Korea. Thus, the won is a domestic currency, while the dollar is a foreign currency. Assume that the won interest rate is 5% and the dollar interest rate is 2%. The current exchange rate is 1,000 per dollar. 

Answer the following questions: 

a. The won is expected to depreciate against the dollar. Therefore, the expected exchange rate will be 1,030 per dollar a year later. 

If you are a holder of dollar deposits, what should you do? 

b. Experts believe that the expected exchange rate has been miscalculated. Given the interest rates and the current exchange rate

 Find the expected exchange rate that satisfies the equilibrium condition for the foreign exchange market today?

Answer rating: 100% (QA)

a If the won is expected to depreciate against the dollar it means that it will take more won to buy ... View the full answer