Chapter 8, Problem 15QA

Why might a foreign government’s policies be closely monitored by investors in other countries, even if the investors plan no investments in that country? Explain how monetary policy in one country can affect interest rates in other countries.

Assume that foreign investors who have invested in Malaysian securities decide to increase their holdings of Malaysian securities and to instead decrease their holdings of securities in their own countries. How will this affect Malaysian interest rates? Explain.

Assume U.S. interest rates are generally above foreign interest rates. What does this suggest about the future strength or weakness of the dollar based on the IFE? Should U.S. investors invest in foreign securities if they believe in the IFE? Should foreign investors invest in U.S. securities if they believe in the IFE?