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Explain how the money markets of two countries are linked through the foreign exchange market.
Answer: The financial policy actions by the Fed affect the U.S. interest rate altering the dollar/euro exchange rate that clears the foreign exchange market. The European System of Central Banks (ESCB) is able to affect the exchange rate by changing the European money supply and interest rate.
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Q. Using a figure describing both the U.S. money market and the foreign exchange market, analyze the effects of an increase in the U.S. money supply on the dollar/euro exchange rat
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