The central bank of a country announces it would play a less active role in limiting...
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The central bank of a country announces it would play a less active role in limiting fluctuations in its currency interest rates. Do you think that the exchange rate of its currency will become more volatile? Why? Take the two currencies-South African Rand (ZAR) and Indonesia Naira (NGN). Suppose the one-year forward exchange rate is 23 NGN per ZAR and the spot exchange rate is 20 NGN per ZAR. What is the forward premium on NGN (the forward discount on ZAR)? What is the difference between the interest rate on one-year ZAR deposits and that on one-year NGN deposits (assuming no repayment risk)? The central bank of a country announces it would play a less active role in limiting fluctuations in its currency interest rates. Do you think that the exchange rate of its currency will become more volatile? Why? Take the two currencies-South African Rand (ZAR) and Indonesia Naira (NGN). Suppose the one-year forward exchange rate is 23 NGN per ZAR and the spot exchange rate is 20 NGN per ZAR. What is the forward premium on NGN (the forward discount on ZAR)? What is the difference between the interest rate on one-year ZAR deposits and that on one-year NGN deposits (assuming no repayment risk)?
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Related Book For
International Economics Theory and Policy
ISBN: 978-0273754206
9th Edition
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
Posted Date:
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