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Impact of Economy on Exchange Rates. Assume that inflation is zero in the United States and in Europe, and will remain at zero. interest rates are…

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1. Impact of Economy on Exchange Rates. Assume that inflation is zero in the United States and in Europe, and will remain at zero. U.S. interest rates are presently the same as in Europe. Assume that the economic growth for the United States is presently similar Europe’s. Assume that international capital flows are much larger than international trade flows. Today, there is news that clearly signals economic conditions in Europe will be weakening in the future, while economic conditions in the United States will remain the same. How would the euro’s value change today based on this information?

2. Movements in Cross-Exchange Rates. Last year a dollar was equal to 7 Swedish kronor, and a Polish zloty was equal to $.40. Today, the dollar is equal to 8 Swedish kronor, and a Polish zloty is equal to $.44. By what percentage did the cross-exchange rate of the Polish zloty in Swedish kronor (that is, the number of kronor that can be purchased with one zloty) change over the last year?

 
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