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Illustrate what impact would these investment flows

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Interest rates and international investment flows

Suppose that the nominal interest rate on three-month Treasury bills is 8% in the United States and 6% in the United Kingdom, and the rate of inflation is 10% in the United States and 4% in the United Kingdom.

a) What is the real interest rate in each nation?

b) In which direction would international investment flow in response to these real interest rates?

c) What impact would these investment flows have on the dollar exchange value?

 

Reference no: EM1339395

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