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Q. Explain why even owners of capital that cannot be moved can avoid more of the economic stability loss due to fixed exchange rates when Norway's economy is open to capital flows.
Answer: The major reason is through diversification. If Norway's capital market is incorporated with those of the EMU neighbours Norwegians will invest some of their wealth in other countries even as at the same time part of Norway's capital stock will be owned by foreigners.
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Q. Explain why the exchange rate model based on PPP is a long-run theory. Answer: PPP theory is a financial approach to the exchange rate. It is a long-run theory for
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