The interest rate on South Korean government securities with one-year maturity is 4 percent, and the expected inflation rate for the coming year is 2 percent. The interest rate on U.S. government securities with one-year maturity is 7 percent, and the expected rate of inflation is 5 percent. The current spot exchange rate is; Korean won is $1 = W1,200. Forecast the spot echange rate one year from today. Explain the logic of your answer.
Answer Discussion Questions 1 and 4 using the Discussion Forum.
Why did the gold standard collapse? Is there a case for returning to some type of gold standard? What is it?
Debate the relative merits of fixed and floating exchange rate regimes. From the perspective of an international business, what are the most improtant criteria in a choice between the systems? Which system is the more desirable for an international business