a. Under modern asset theory, what are different factors that affect a country’s exchange rate relative to another country?
b. Explain using the demand and supply curve for FX rates, what would happen to the US FX rate if:
(1) Inflation goes up in the U.S. relative to its trading partners.
(2) Real interest rates go up in the U.S.
(3) The U.S. put tariffs on goods from other countries.
(4) With new technologies developed, the productivity of the U.S. increases.