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Suppose that the exchange rate adjusts so that interest-rate

Paper help Economics Suppose that the exchange rate adjusts so that interest-rate

Economics

Suppose that the exchange rate adjusts so that interest-rate

Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the… Show more Suppose that the exchange rate adjusts so that interest-rate parity holds. Suppose also that the interest rate on a one-year German is 7 percent and the interest rate on a one-year US bond is 4 percent. a. Suppose that you expect the exchange rate in one year to be 1.2 dollars per euro. What is the exchange rate today? b. Suppose that relative purchasing-power parity holds and that the inflation rate in Germany is expected to be 2 percent over the next year. What is the expected inflation rate in the United States? • Show less

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