3. Suppose the Canadian interest rate is 5% and the U.S. interest rate is 2%.a. If uncovered interest rate parity holds, what must be the expected growth in theCanadian exchange rate (E$/CND)?b. Suppose the expected exchange rate a year from now is .8. What is the spot exchangerate?4. There have been increasing political tensions between the U.S. and China as the twocountries negotiate a new trade agreement. Suppose China decides to sell its holding ofU.S. treasury securities as a means of punishing the U.S.a. Draw a graph showing the supply and demand for RMB (the Chinese currency). Thevertical axis is ES/RMB. Show the effect of China's sale of U.S. treasury securities on thedollar-RMB exchange rate.b. Explain what effect the asset sale will have on the U.S. current account.

Uncovered interest rate parity (UIRP) states that the difference in interest rates between two…

3. Suppose the Canadian interest rate is 5% and the U.S. interest rate is 2%. a. If uncovered interest rate parity holds, what must be the expected growth in the Canadian exchange rate (Es/CND)? b. Suppose the expected exchange rate a year from now is .8. What is the spot exchange rate?

3. Suppose the Canadian interest rate is 5% and the U.S. interest rate is 2%. a. If uncovered interest rate parity holds, what must be the expected growth in the Canadian exchange rate (Es/CND)? b. Suppose the expected exchange rate a year from now is .8. What is the spot exchange rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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