The real interest rates and real exchange rates are constant and equal in North Country and South Country. The Fisher equation and purchasing power parity hold in both countries. If the nominal interest rate is 8 percent in North Country and 10 percent in South Country, do you expect North Country's nominal exchange rate to appreciate, depreciate, or remain the same? Explain.

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The Answer of The real interest rates and real exchange rates are constant and equal in North Country and South Country. The Fisher equation and purchasing power parity hold in both countries. If the nominal interest rate is 8 percent in North Country and 10 percent in South Country, do you expect North Country's nominal exchange rate to appreciate, depreciate, or remain the same? Explain.

The Real Interest Rates and Real Exchange Rates Are Constant