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Is it reasonable to expect real rates of interest to be identical across countries? Explain. What...

Is it reasonable to expect real rates of interest to be identical across countries? Explain. What does this imply about parity? Explain how a drop in the value of the dollar could affect the U.S. import and export sectors.

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Answer #1

No, it's not possible for all the econoies to have the similae interest rates because the inflation level and the interest rates relationship varies from economy to economy (developed economy to developi economy). The difference also occurs due to the size or scale of the economies.

From the parity perspective, the differential between the interest rates of two economies will match with the differential of their currecy rates, thereby sufficing the interest crate parity theory.

From the US perspective: Drop in value of dollar will make it cheaper for foreigners to buy products from US. Thefore, exports will increase. On the other side, it will be expensive for US to import products from the foreign country.

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