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459midterm1studysheet - Brigham Young University Department...

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Brigham Young University Department of Economics Economics 459 - International Finance Midterm #1 Study Sheet Foreign Exchange Markets Participants, instruments, timing, & locations Market organization Vehicle currencies Bid & ask prices and spreads Spatial & triangular arbitrage Interest Rate Parity Covered * i i Uncovered } ' { * E i i Know the intuition, where does a risk premium figure in? Forward Bias Puzzle In the regression t t t u 1  , what does theory say & should be? Be able to derive your answer from interest rate parity conditions and rational expectations. What do actual estimates of & look like? What is the return on a short position in foreign currency? A long position? Explain how you could exploit this information to make money speculating in foreign currency.
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