Problem
1. In a free market, what factors underlie currency exchange values? Which factors best apply to long-run exchange rates and to short-run exchange rates?
2. Why are international investors especially concerned about the real interest rate as opposed to the nominal rate?
3. What predictions does the purchasing-power parity theory make concerning the impact of domestic inflation on the home country's exchange rate? What are some limitations of the purchasing-power-parity theory?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.