Homework Assignment – 7

Alternatively you can convert your EUR to dollars at the unknown exchange rate, invest for a year at 2% and it must equal $1.33875. Thus the exchange rate must be 1.33875/1.02 = $1.3125/EUR. If the balance in the current account increases by $2bn while the capital account falls by $3.5bn, what is the effect on governmental international reserves? ................
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