Question: Using forward substitution, explain how the current exchange rate is an undiscounted sum of future interest differentials, and a terminal value. Using this framework, discuss

Using forward substitution, explain how the current exchange rate is an undiscounted sum of future interest differentials, and a terminal value. Using this framework, discuss how the exchange rate might be impacted if the RBA is more aggressive in its pursuit of inflation (by raising interest rates higher than the rest of the world) than other countries.

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