1. Factors affecting exchange rates. What factors affect the future movements in the value of the euro against the dollar?
2. Interaction of exchange rates. Assume that there are substantial capital flows between the United Kingdom, the United States, and the euro area. If interest rates in the United Kingdom decline to a level below the US interest rate, and inflationary expectations remain unchanged, how could this affect the value of the euro against the US dollar? How might this decline in the United Kingdom's interest rate possibly affect the value of the British pound against the euro?