Suppose the price level in the us is 12500 and in the uk it, Ask an Expert

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Suppose the price level in the US is $12,500 and in the UK it is GBP 9,500. If current interest rates in the UK is 4% and in the US it is 2.5%. What does the asset model predict will be the dollar pound spot rate? Further what if the Fed doubles the growth rate of money supply as a permanent policy, what does the asset model predict will be the dollar pound rate if US interest rate falls by 2%. (Note a permanent policy will affect the long run exchange rate)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92862007

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