Ecnms_313__problem_set__3

Ecnms_313__problem_set__3 - higher return. 26) What should...

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20) What should happen to the exchange rate? - The exchange rate should increase due to the increase in expected real return on U.S. assets. 24) Should you invest in Mexico? Why or why not? - Yes I should invest in Mexico because of its higher nominal return. But it also depends on the current nominal exchange rate and the expected exchange rate for the investing period. If I expect an higher increase in the exchange rate during my investing period, I will definitely reevaluate my decision and choose a better investment with
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Unformatted text preview: higher return. 26) What should be the interest rate in the eurozone (assume that there are no differences in risk, liquidity, or information characteristics), according to the nominal interest rate parity condition? - 1.35-1.5/1.5= -0.10 12% - (10%)= 2% When the foreign nominal interest rate is higher than the domestic nominal interest rates, the domestic currency depreciated....
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