ume you fully believe that any movements in the exchange rate can be predicted using the inflation rate differential between countries (i.e., you believe in the purchasing power parity). You collect some data on Chile and Paraguay and find that the two countries have the same nominal interest rate. However, the central bank of Paraguay just made an announcement suggesting a downward revise of the real interest rate with no expected change in the nominal interest rate. Based on this information, what do you think will be the effect on the Paraguayan guaraní (the Paraguayan currency)? Will it appreciate, depreciate, or remain constant? Explain briefly your reasoning.  Please answer Quick

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Currency Market

The currency market, also known as the foreign exchange market, consists of currencies worldwide. This market determines the rate of all currencies based on the buying and selling of forex. It is an over-the-counter market. It is the largest and most liquid market based on trade volume.