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Explain exchange rate determination

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Let Turkey be the home country and France be the foreign country. Suppose that the ECB (European Central Bank) starts contracting the euro money supply as the countries in the union are recovering from the pandemic. Assume everything else is constant.

Consider the FX market and the money market diagrams we learned within the asset approach to exchange rate determination. Explain what happens to the equilibrium ETL/€ exchange rate following the ECB monetary policy change.

Reference no: EM133073599

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