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How do changes in the interest rates set by a central bank influence the exchange rates between currencies in the short term and long term? Discuss the potential mechanisms through which these changes can affect international trade balances and capital flows, and consider any possible lag effects in these responses.

How do changes in the interest rates set by a central bank influence the exchange rates between currencies in the short term and long term? Discuss the potential mechanisms through which these changes can affect international trade balances and capital flows, and consider any possible lag effects in these responses.

Macroeconomics: Private and Public Choice (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter19: International Finance And The Foreign Exchange Market
Section: Chapter Questions
Problem 11CQ
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How do changes in the interest rates set by a central bank influence the exchange rates between currencies in the short term and long term? Discuss the potential mechanisms through which these changes can affect international trade balances and capital flows, and consider any possible lag effects in these responses.
Transcribed Image Text:How do changes in the interest rates set by a central bank influence the exchange rates between currencies in the short term and long term? Discuss the potential mechanisms through which these changes can affect international trade balances and capital flows, and consider any possible lag effects in these responses.
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