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Author Question: Explain why exchange rates are more volatile than is suggested by the relatively simply interest ... (Read 15 times)

ARLKQ

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on: Jun 30, 2018
Explain why exchange rates are more volatile than is suggested by the relatively simply interest parity condition presented earlier in the course.
 
  What will be an ideal response?

Question 2

If the saving rate is 1 (i.e., s = 1), we know that
 
  A) K/N will be at its highest level.
  B) Y/N will be at its highest level.
  C) C/N = 0.
  D) all of the above


frankwu0507

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Put simply, there are more variables that can affect the current exchange rate. That is, there are variables in addition to the current domestic and foreign interest rates and one-year expected exchange rate that matter. A change in any of these variables will cause E to change.

Answer to Question 2

D


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