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Suppose that the exchange rate adjusts so that interst-rate party holds. Suppose also that the interest rate on a one-year German bond is 7 percent and the interest rate on a one -year U.S. 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 bee 2% over the next year. What is the expected inflation rate in the United States?

International Economics, Economics

  • Category:- International Economics
  • Reference No.:- M9491990

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