The real dollar and euro exchange rate over the next year

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Reference no: EM131590388

Suppose the expected real interest rate in the United States is 9 percent per year while that in Europe is 3 percent per year.

(1) What do you expect to happen to the real dollar/euro exchange rate over the next year?

(2) Suppose the expected inflation rates are 5 percent per year in the United States and 2 percent per year in Europe, respectively, what do you expect to happen to the nominal dollar/euro exchange rate over the next year?

Reference no: EM131590388

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