SIB675-Exercise Related to Chapter 8-Relationships among Inflation, Interest Rates, and Exchange Rat - SIB675 Exercise Related to Chapter 8

SIB675-Exercise Related to Chapter 8-Relationships among Inflation, Interest Rates, and Exchange Rat

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SIB675: Exercise Related to Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates 1. Assume a two-country world: Country A and Country B. Which of the following is correct about thepurchasing power parity (PPP) as related to these two countries? a. if Country A’s inflation rate exceeds Country B’s inflation rate, Country A’s currency willweaken(depreciate).b. if Country A’s interest rate exceeds County B’s inflation rate, County A’s currency willweaken (depreciate). c. if County A’s interest rate exceeds County B’s inflation rate, County A’s currency willstrengthen (appreciate).d. if County B’s inflation rate exceeds County A’s inflation rate, County A’s currency will weaken(depreciate). 2. The international Fisher effect (IFE) suggests that:
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