PACh20 - Econ 520(Spring 2007 Answers to Problems for Chapters 20 Masao Ogaki(1 The expected rate of return on U.S bonds is equal to the domestic

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Econ 520 (Spring 2007) Answers to Problems for Chapters 20 Masao Ogaki (1) The expected rate of return on U.S. bonds is equal to the domestic interest rate. Hence when the domestic interst falls, the schedule for the expected return on U.S. bonds shifts to the left. The exchange rate rises as in the diagram below. Hence the dollar depreciates. E t Expected rates of return in dollar terms Expected return on foreign bonds Expected return on U.S. bonds, i E 1 E 2 1 2 @ @ @ @ @ @ @ @ @ - 6 (2) The expected return on foreign bonds falls when the foreign interest expected return on foreign bonds sh±ts to the left. The exchange rate falls as in the diagram below. Hence hte dollar appreciates. 1
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E t Expected rates of return in dollar terms Expected return on foreign bonds Expected return on U.S. bonds, i E 2 E 1 2 1 @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ @ - 6 (3) The expected return on foreign bonds increase when the dollar is expected
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This note was uploaded on 07/17/2008 for the course ECON 520 taught by Professor Ogaki during the Spring '07 term at Ohio State.

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PACh20 - Econ 520(Spring 2007 Answers to Problems for Chapters 20 Masao Ogaki(1 The expected rate of return on U.S bonds is equal to the domestic

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