Question ThreeDistinguish between the short run and long run determinants of exchange rate volatility. In your assessment show how the exchange rate movements can influence the Interest Parity Condition.. Consider that a basket of goods in Johannesburg is worth ZAR 5000 (5000 rands) while the same basket of goods is worth K7500 (7500 kwacha) in Zambia. A check for the displayed exchange rates at one of the FnB branches in Lusaka revealed that ZAR1 (1 rand) can be exchanged for K1.16. Based on the foregoing establish the nominal exchange rate and the real exchange rate between the kwacha and the rand. Comment on your estimates in the face of international trade between Zambia and South Africa

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Distinguish between the short run and long run determinants of exchange rate volatility. In your assessment show how the exchange rate movements can influence the Interest Parity Condition. .

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: International Finance

Section: Chapter Questions

Problem 4QP

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Question Three

Distinguish between the short run and long run determinants of exchange rate volatility. In your assessment show how the exchange rate movements can influence the Interest Parity Condition.

Consider that a basket of goods in Johannesburg is worth ZAR 5000 (5000 rands) while the same basket of goods is worth K7500 (7500 kwacha) in Zambia. A check for the displayed exchange rates at one of the FnB branches in Lusaka revealed that ZAR1 (1 rand) can be exchanged for K1.16. Based on the foregoing establish the nominal exchange rate and the real exchange rate between the kwacha and the rand. Comment on your estimates in the face of international trade between Zambia and South Africa

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