Question

3a) Suppose that Malaysia wants a stable exchange rate with respect to the dollar, and also wants to retain the ability to have an independent monetary policy. Are these goals consistent? What measures will Malaysia have to take so that it can achieve the above goals? Explain your answer. (20 points)

3b) A certain country is facing a difficult BOP situation with a large current account deficit. In response, the country decides to raise interest rates. Will this work? Discuss. (20 points)