How will international capitals ?ow

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Reference no: EM133641202

Question: International investors are deciding where to allocate their capital. The interest rate in the US has been approximately 1%, while the average interest rate in the Euro Zone is 2%. The current exchange rate is 0.8 Euros per US dollar. a) What is the expected exchange rate for the next period? Use the Interest Parity Condition.

The Fed recently announced that the US interest rate is expected to rise to 2% and the interest rate in Europe is expected to remain 2%.

How will international capitals ?ow?

How will the exchange rate and domestic output change?

Reference no: EM133641202

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