I need help with a Economics question. All explanations and answers will be used to help me learn.
- Suppose that the US dollar interest rate and the Swiss Franc interest rate are the same, 5 percent per year, but that there is a risk premium of 1 percent associated with holding Swiss Franc rather than US dollars over the year.
(a) What is the relationship (in percentage terms) between the current equilibrium dollar/franc exchange rate and its expected future level?
(b) If the expected future exchange rate is $1.12 per franc, what is the equilibrium dollar/franc (spot) exchange rate?
Now suppose that the expected future exchange rate, $1.12 US per franc, remains constant as Swiss’s interest rate rises to 10 percent per year.
(c) If the US interest rate also remains constant, what is the new equilibrium dollar/franc exchange rate?
NOTE: Ignore calculations. Write theory, definitions & examples explaining the concepts associated to the above topics. (Include Abstract, 3 paragraphs body, Conclusion and 6 references)
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Additional Info: Please explore and critically think about some of the learning objectives and concepts presented in this course. Please effectively communicate how you would lead an organization (or a group of people within the organization) by applying the knowledge you have learned ethically and responsibly.You may frame your discussion around any functional component of business, and in any context; problem-solving, management, leadership, organizational behavior, etc.