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Presume that the Malaysian ringgit is pegged to the US dollar at 2.5 ringgit/$. The central bank of Malaysia has $1 billion of international reserves left. Malaysian banks offer short term loans and deposits for any amount at an interest rate of 10 percent. Agents expect that if foreign reserves are exhausted, the Malaysian ringgit will depreciate to three ringgit/$. How would you attack the peg if you were a speculator? How much profit can you make?

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Microeconomics, Economics

Category:- Microeconomics
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