Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per year What is the relation between the current equilibrium $ exchange rate and its expected future level Suppose the expected future$ exchange rate, $1 52 per pound, remains constant as Britains interes...

Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per

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Suppose the dollar interest rate and the pound sterling interest rate are the same, 5 percent per year. What is the relation between the current equilibrium $/£ and its expected future level? Suppose the expected future$/£exchange rate, $1.52 per pound, remains constant as Britain’s interest rate rises to 10 percent per year. If the U.S. interest rate also remains constant, what is the new equilibrium$/£exchange rate?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

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International Economics Theory and Policy

ISBN: 978-0273754206

9th Edition

Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz

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Question Posted: Oct 24, 2012 11:43 PM

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International Economics Theory and Policy

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