Assume that day-to-day exchange rate movements are dictated primarily by the flow of funds between countries, especially international bond and money market transactions. How will exchange rates be affected by possible changes in the international flow of funds that are caused by the event?
Using your answer to (1) only, explain how prices of U.S. money market securities, bonds, and mortgages will be affected.
Now use your answer to (2) along with your answer to (1) to assess the impact on security prices.
Would prices of risky securities be affected more or less than those of risk-free securities with a similar maturity? Why?