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Homework answers / question archive / George Washington University IFE 2201 1)If the domestic interest rate decreases, with the foreign interest rate and the expected future spot rate remaining unchanged, the value of the domestic currency vis-à-vis the foreign currency is expected to: increase
George Washington University
IFE 2201
1)If the domestic interest rate decreases, with the foreign interest rate and the expected future spot rate remaining unchanged, the value of the domestic currency vis-à-vis the foreign currency is expected to:
Scenario 20.1
Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar.
The figure above shows the foreign exchange market. D≤ is the demand curve for pounds. S≤ (Spring- summer) and S≤ (Autumn-winter) are the supply curves of pounds during the spring-summer and autumn- winter seasons, respectively.
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