Suppose that the annual nominal interest rate is 4% in the euro area and 6% in New Zealand. If the euro is expected to appreciate against the NZ dollar by 1% over the next year, investors will _____.[Hint: see page 4 of lecture 4A and Q1 of In-class Quiz - Week 6A, apply the approximate approach to this question.]Group of answer choicesbuy the euro and sell the NZ dollar todaymove funds from New Zealand to the euro areamove funds from the euro area to New Zealandnot change their international investment allocation

The annual nominal interest rate is 6% in the euro area and 4% in New Zealand. Suppose that there is no change in the expected future exchange rates, and the UIP holds initially.If the spot exchange rate depreciates today, _______.[Hint: see page 4 of lecture 4A,  question 4 of In-class Quiz - Week 5B]Group of answer choicesthe foreign return in terms of NZD rises.the foreign return in terms of NZD falls.the domestic return falls.the domestic return rises.

Suppose that the annual growth rate of nominal money supply is 1% in New Zealand and 5% in the Australia, and the annual growth rate of real GDP is 2% in New Zealand and 4% in Australia. According to the monetary model of exchange rate, the New Zealand dollar would __________ against the Australian dollar on an annual basis in the long run.[Hint: See question 4 of In-class Quiz - Week 5A]Group of answer choicesappreciate by 2%depreciate by 2%appreciate by 4%depreciate by 4%

Today, the RBNZ permanently rises in the level of the NZ money supply. In the long run, nominal interest rates in NZ _______. In New Zealand, today's spot exchange rate  ________ the expected future exchange rate.Group of answer choicesremains unchanged; rises by a larger magnitude thanfalls; rises by a larger magnitude thanrises; falls by a larger magnitude thanremains unchanged; falls by a larger magnitude than

If interest rate in New Zealand going up, what happen in the foreign exchange market (FOREX)?radio_button_uncheckedCost of borrwoing in NZ goes up, fewer NZ firms will borrow money to invest, fewer NZ firms will need NZD.Demand for NZD at FOREX will decrease.radio_button_uncheckedCost of borrowing in NZ goes up, fewer foreign people will borrow money from NZ banks, fewer foreign people will need NZD.Demand for NZD at FOREX will decrease.radio_button_uncheckedReward for saving in NZ goes up, more NZ people will save money in NZ, more NZ people will use NZD.Demand for NZD at FOREX will increase.radio_button_uncheckedReward for saving in NZ goes up, more foreign people will save money in NZ, more foreign people will exchange their own currency into NZD. Demand for NZD at FOREX will increase.SUBMIT

Assume that Australia follows a fixed exchange rate system. Suppose the current exchange rate is 1.40 AUdollars per pound without the Reserve Bank of Australia's intervention. In order to defend the fixed rate of 1.60 AUdollars per pound, The Reserve Bank of Australia must intervene in the foreign exchange market and __________ billion pounds. Question 4 Answer a. buy 200 b. buy 300 c. buy 400 d. sell 200 e. sell 300 f. sell 400