1) Suppose you observe the following term structure of interest rates:If the Uncovered Interest Rate Parity holds…The exchange rate E in 9 months is expected to be (roughly) {the same/higher/lower} as the exchangerate in 6 months2) Suppose that traders in the foreign exchange rate market have the new, uniform expectation that thatin 3 months the exchange rate between $ and Swiss Franc CHF will grow by 10%. If the uncoveredinterest rate parity holds, and you observe that the current exchange rate E did not change…
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3) Suppose that the forward rate between $ and British Pound at 3 months is F=1.5If you are a trader expecting that the spot rate in 3 months will be 2, you should…
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4) If two countries had identical term structures of interest rates (the interest rate on their bonds is thesame at every maturity), and the covered interest rate parity holds, you expect that the forward rate…is {the same as/lower than/higher than} the spot rate5) Suppose that P=$1.5 and PF=BP 1.6 for a Big Mac. If law of one price holds, then the exchange ratebetween $ and BP should be…6) Define Law of One Price7) Suppose that a Big Mac costs $5.79 in the US, and Yuan 20 in China. You are told that the exchangerate between $ and Yuan is Yuan=$2From what you know about PPP theory and Law of One Price, the Yuan is…{undervalued/overvalued/just right}! It should be about {3.45/2/0.289}8)The picture above represents the real exchange rate for the United States. This picture is…