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Under the extended balance portfolio model of exchange rate determination, predict what will be the effect...

Under the extended balance portfolio model of exchange rate determination, predict what will be the effect of Zambia’s exchange rate if the domestic interest rate was to fall relative to the foreign interest rate.

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As per the extended balance portfolio model of exchange rate determination the effect of Zambia’s exchange rate if the domestic interest rate falls relative to the foreign interest rate will be that the Zambia's currency will depreciate relative to the foreign currency.

The fall in the interest rate in Zambia relative to foreign interest rate will prompt the investors to pull out money from the country and the outflow of money will cause the domestic currency ( Zambia's currency )to depreciate relative to the foreign currency.

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