(a) Suppose that you live in Korea. Thus, the won is a domestic cur- rency, while the dollar is a foreign currency. Assume that the won interest rate is 5% and the dollar interest rate is 2%. The...

Extracted text: (a) Suppose that you live in Korea. Thus, the won is a domestic cur- rency, while the dollar is a foreign currency. Assume that the won interest rate is 5% and the dollar interest rate is 2%. The current exchange rate is W1,000 per dollar. Answer the following questions: a. The won is expected to depreciate against the dollar. Therefore, the expected exchange rate will be W1,030 per dollar a year later. If you are a holder of dollar deposits, what should you do? b. Experts believe that the expected exchange rate has been mis- calculated. Given the interest rates and the current exchange rate, find the expected exchange rate that satisfies the equilib- rium condition for the foreign exchange market today.