Can someone explain to me what a ‘leaning against the wind’ exchange rate policy means? I really did not understand those 2 questions.
I think you meant pg 468, not 486. Q19: When foreign currency appreciates - value of foreign bond rises. Usually Currency appreciation and Interest Rate increase go hand in hand. Leaning against the wind means Foreign bond ytm drops to stabilize exchange rate against the . $ value of bond rises due to both a. Price of the Bond rising due to FC appreciating. and b. Value of the bond itself rising.
Awesome… Thanks cp!