6. The rate of nominal depreciation is faster, the higher is the home coun- try's inflation rate relative to that of the

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6 The Rate Of Nominal Depreciation Is Faster The Higher Is The Home Coun Try S Inflation Rate Relative To That Of The 1 (62.4 KiB) Viewed 24 times

6. The rate of nominal depreciation is faster, the higher is the home coun- try's inflation rate relative to that of the foreign country and the faster is its rate of real depreciation. 7. Higher government debt in a small open economy is associated with lower net foreign assets. 9. Based on purchasing power parity the Canadian dollar is currently un- dervalued. 10. The forward exchange rate may contain a risk premium, and so it deviates from the market's expectation of the future nominal exchange rate. 11. A booming economy induces trade balance deficits, which increase the likehood of devaluation (or depreciation). 12. A currency could be overvalued if consumer prices are generally higher at home than abroad when compared in a common currency, or under- valued if these prices are lower at home.