1 suppose you observe the following term structure of

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 exchange
rate in 6 months
2) Suppose that traders in the foreign exchange rate market have the new, uniform expectation that that
in 3 months the exchange rate between $ and Swiss Franc CHF will grow by 10%. If the uncovered
interest rate parity holds, and you observe that the current exchange rate E did not change…
3) Suppose that the forward rate between $ and British Pound at 3 months is F=1.5
If you are a trader expecting that the spot rate in 3 months will be 2, you should…
4) If two countries had identical term structures of interest rates (the interest rate on their bonds is the
same 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 rate
5) Suppose that P=$1.5 and P
F
=BP 1.6 for a Big Mac. If law of one price holds, then the exchange rate
between $ and BP should be…
6) Define Law of One Price
7) Suppose that a Big Mac costs $5.79 in the US, and Yuan 20 in China. You are told that the exchange
rate between $ and Yuan is Yuan=$2
From 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…

Evidence {against/in favor of} the PPP Theory, because if PPP Theory held, we should observe Real
Interest Rates to be {constant/extremely volatile} over time
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Exchange Rates Regimes, Devaluations and Current Accounts
1) Suppose that the Exchange Rate between US $ and The Japanese Yen goes from Yen=$1/100 to
Yen=$1/50. According to the elasticity approach to the current account...