Question: Assume that the United States heavily invests in government and corporate securites of Country K. In addition, residence of Country K heavily invest in the United States. Approximately $10 billion worth of investment transactions occur between these 2 countries. The total dollar value of trade transactions per year is aout $8 million. This information is expected to hold in the future.
Because your firm exports goods to Country K, your job as an international cash manager requires you to forecast the value of Country K's currency (the "krannk") with respect to the dollar. Explain how each of the following conditions (with graphs) will affect the value of the krank, holding other things equal.
a. The U.S. inflation has suddenly increased substantially, while country K's inflation remains low.
b. THe U.S. interest rates have decreased substantially, while Country K's interest rates remain low. Investors of both countries are attracted to high interest rates.
c. The United States is expected to place a small tariff on goods imported from Country K.
d. Combine all expected impacts to develop an overall forecast