00:01
So here we have a question, but right away i noticed, does our analysis of the foreign exchange market suggest any connection? well, let's draw a foreign exchange market to find out.
00:09
We can draw a foreign exchange market by comparing q equals the number of dollars and epsilon equals the exchange rate, right? we have demand for u .s.
00:25
Dollars and supply of u .s.
00:26
Dollars.
00:26
And now the key thing is here, it's that is now thinking about actually the story.
00:35
So what the shock is going to be is that the fed will let interest rates move, right? this is the story, right? the federal reserve is going to play a less active role in limiting fluctuations in dollar interest rates, right? so the interest rate on dollars is going to move more, right? but what happens when the interest rate goes up? when the interest rate goes up, that means people want dollars, right? if dollars are paying a higher interest rate, they are more attractive.
01:17
And if the interest rate goes down, people don't want dollars.
01:24
So the demand for the u .s...