Question

Only provide your opinions when specifically called for. In all other cases your answer(s) should rely on the text and module materials and not on the internet, showing your capacity to apply the appropriate economic principles and concepts correctly.

1. Assume that the Central Bank of Nation X is responsible for maintaining fixed exchange rates by buying and selling domestic and foreign currencies in exchange markets. Now suppose that interest rates in Nation X are rising in relation to interest rates in other nations. How does the Central Bank of Nation X respond in order to keep the value of its currency stable? Explain.

2. How are exchange rates determined if that currency is allowed to float?

All discussion assignments count 100 points. Evaluation of the discussion assignments will consider spelling and grammar, including punctuation and capitalization.

Remember that initial discussion postings to this topic should be a minimum of 100 words. Do not post this as an attachment.