Explain how an increase in American interest rates will lead to an appreciation of the U.S. dollar vis-à-vis
the British pound.
2. What are floating exchange rates?
3. a.What action would a government take to keep its exchange rate from rising if demand for its currency
b.Why would a government want to keep its exchange rate from rising?
4. a.What are foreign exchange reserves?
b.What actions can a government take if it exhausts its foreign exchange reserves?
5. Explain why foreign trade imbalances do not always create problems.
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