S0

S2

D 1

D0

D2 lb

As shown in the figure: the difference of interest rate and the fluctuation of exchange rate. The equilibrium interest rate is determined by S0 and D0.

A. Nationalizing foreign assets will lead to a decrease in investment in Britain, a decrease in demand for sterling, a shift in demand curve D0 to D2, and a decrease in exchange rate under the condition of constant supply.

B. If the recession in Britain is lighter than that in the United States, the residents of the two countries will invest more in Britain than in the United States, so the demand for pounds will increase. Under the condition of constant supply, the demand curve will move from D0 to D 1, and the exchange rate will rise.

C. Raising interest rates will increase investment in Britain, increase the demand for sterling, shift the demand curve from D0 to D 1, and increase the exchange rate.

D. The decrease in oil exports to the United States will reduce the demand for pound sterling, the demand curve D0 will move to D2, and the exchange rate will fall under the condition of constant supply.

E. If the United States reduces the tariff on British imports, it will reduce the cost of British goods, increase the demand for British goods, and then increase the demand for British pounds. Under the condition of constant supply, the demand curve will move from D0 to D 1, and the exchange rate will rise.

F. There is serious inflation in Britain, that is, the currency circulation in Britain is too large, the supply curve S0 moves S2, and the exchange rate falls.

G. With the decrease of American tourists to Britain, the demand for pound sterling decreases, and the demand curve D0 shifts to D2. Under the condition of constant supply, the exchange rate fell.

Britain attracts American companies to invest in BP, and the demand for pounds increases. Under the condition of constant supply, the demand curve moves from D0 to D 1, and the exchange rate rises.

First, the serious decline in the growth rate of British productivity will increase the price of domestic products, thus reducing the export of British products, reducing the demand for pounds, moving the demand curve D0 to D2, and lowering the exchange rate under the condition of constant supply.

J. increasing British imports of American cars, trucks and computers will increase the demand for dollars and reduce the demand for pounds. The demand curve D0 will move to D2, and when the supply remains unchanged, the exchange rate will fall.

K According to the principle of purchasing power parity, the exchange rates of the two countries remain unchanged under the condition that the inflation rates of the two countries are the same and other conditions remain unchanged.