Impact of Economy on Exchange Rate The country of Quinland has large capital flows with the United States. It has no trade with the United States and will not have trade with the United States in the future. Its interest rate is 6 percent, the same as the U.S. interest rate. You expect that the inflation rate in Quinland will be 1 percent this coming year, whereas the U.S. inflation rate will be 9 percent. You expect that Quinland’s interest rate will be 2 percent during the next year, whereas the U.S. interest rate will rise to 10 percent during the next year. Quinland’s currency adjusts in response to market forces. Will Quinland’s currency appreciate, depreciate, or remain unchanged against the dollar?

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 4, Problem 31QA
Textbook Problem

Impact of Economy on Exchange Rate The country of Quinland has large capital flows with the United States. It has no trade with the United States and will not have trade with the United States in the future. Its interest rate is 6 percent, the same as the U.S. interest rate. You expect that the inflation rate in Quinland will be 1 percent this coming year, whereas the U.S. inflation rate will be 9 percent. You expect that Quinland’s interest rate will be 2 percent during the next year, whereas the U.S. interest rate will rise to 10 percent during the next year. Quinland’s currency adjusts in response to market forces. Will Quinland’s currency appreciate, depreciate, or remain unchanged against the dollar?

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