Relative Importance of Factors Affect Exchange Rate Risk
Response to the following problem:
Assume that the level of capital flows between the United States and the country of Krendo is negligible (close to zero) and will continue to be negligible. There is a substantial amount of trade between the United States and the country of Krendo and no capital flows. How will high inflation and high interest rates affect the value of the kren (Krendo's currency)? Explain.