Weighing the Influence of Factors on Exchange Rates The New Zealand dollar’s spot rate was equal to $0.60 last month. New Zealand conducts much international trade with the United States, but the financial (investment) transactions between the two countries are negligible. Assume the following conditions have occurred in the last year. First, interest rates increased in New Zealand but decreased in the United States. Second, inflation increased in New Zealand but decreased in the United States. Third, the New Zealand central bank intervened in the foreign exchange market by exchanging a very small amount of U.S. dollars to purchase a very small amount of New Zealand dollars. How should the New Zealand dollar change over the year based on the information provided here?

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 35QA
Textbook Problem

Weighing the Influence of Factors on Exchange Rates The New Zealand dollar’s spot rate was equal to $0.60 last month. New Zealand conducts much international trade with the United States, but the financial (investment) transactions between the two countries are negligible. Assume the following conditions have occurred in the last year. First, interest rates increased in New Zealand but decreased in the United States. Second, inflation increased in New Zealand but decreased in the United States. Third, the New Zealand central bank intervened in the foreign exchange market by exchanging a very small amount of U.S. dollars to purchase a very small amount of New Zealand dollars. How should the New Zealand dollar change over the year based on the information provided here?

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