INT-113 FInal exam - Jenny Shen INT-113 Final Exam Part I....

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Jenny Shen INT-113 Final Exam Part I. On Bluebook I did 3 of must short- essay : 1. 3. 4. 5. What is the relationship between inflation, interest rates, and currency values? Interest and inflation are related in one, main way, and that is through the fluctuation of available money. If the Fed decides that they are going to produce more paper money, then the average person will have more purchasing power, thus spend more on things they wouldn't normally. Because of the increase in money, in order to keep up businesses raise prices, thus causing inflation. Interest rates and inflation are positively related (high inflation=high interest). As the reference currency value rises and falls, so does the pegged currency. The currency value is determined by market forces, but the central bank intervenes occasionally in the foreign exchange market to maintain the value of its currency relative to a major reference currency. The link between interest rates and inflation, and between inflation and currency value, implies a relationship between interest rates and the currency. For example, if interest rates in Japan are high, foreigners buy Japan’s interest-bearing investment
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INT-113 FInal exam - Jenny Shen INT-113 Final Exam Part I....

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