1. Consider the FX market between US and Thailand. The current spot exchange rate is 30.46
Thai baht per USD, Ebaht/dollar = 30.46 and the Thai baht is fixed against the USD (fixed exchange rate regime).
a. Under a credible and stable fixed exchange rate regime, what do you think the value of Eebaht/dollar would be?
b. Assume that the expected future exchange rate increases, Eebaht/dollar. Assuming everything else constant, what should the Bank of Thailand do if they would like to protect and keep the peg?
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