How the development-ceteris paribus might affect the dollar

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Reference no: EM13219215

As an investor residing in the US you are considering making an investment in the UK in a pound denominated security with a fixed rate of return, say, 5%. Because your investment is denominated in the British pound you are interested in knowing how certain future economic developments my affect the dollar/pound exchange rate. Determine and explain how each of the following development, ceteris paribus, might affect the dollar rate of return of your investment. (Consider each development separately.) a. Higher inflation in the US than in the UK, while the US economy is growing faster than the UK economy b. Bank of England lowers the interest rate in the UKc. Because of the uncertainty about the Federal budget and the possibility the US economy going over "the cliff", the US economy enters into another round of economic slowdown that could lead to another recession

Reference no: EM13219215

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