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Explain how the money markets of two countries are linked through the foreign exchange market.
Answer: The financial policy actions by the Fed affect the U.S. interest rate altering the dollar/euro exchange rate that clears the foreign exchange market. The European System of Central Banks (ESCB) is able to affect the exchange rate by changing the European money supply and interest rate.
Q. What are the main functions of money? Answer: Money serves generally three important functions that are a unit of account, a medium of exchange and a store of value.
Critically evaluate the classical theory of international trade
1. Explain why many Asian countries set up Export Processing Zones and why China set up Special Economic Zones. What are the similarities and differences between EPZs and SEZs?
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Q. What is the national income identity for an open economy? Answer: Y = C + I + G + EX - IM.
Q. Explain why East Asian countries have done so well relative to South American countries. Answer: Generally the reasons are less moral hazard less government debt to forei
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