Explain why exchange rates are more volatile than is suggested by ...

[ARLKQ]

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]

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