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Q. Analyze the effects of an increase in the European money supply on the dollar/euro exchange rate.
Answer: The major points are: A raise in the European money supply will reduce the interest rate on the euro and therefore causes the euro to depreciate against the dollar. The U.S. money supply and money demand aren't going to be affected and therefore the interest rate in the U.S. will stay the same.
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Q. Present the case against floating exchange rates. Answer: 1.The discipline obligatory on individual countries by a fixed rate would be lost. 2. Undermine specu
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