Problem
1. Continue with the last question. Imagine that in Italy the interest rate on five-year government bonds was 11 percent per annum; in Germany the rate on five-year government bonds was 8 percent per annum. What would have been the implications for the credibility of the current lira/DM exchange parity?
2. Do your answers to the last two questions require an assumption that interest rates and expected exchange rate changes are linked by interest parity? Why or why not?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.