1. What is the forward premium? Why should it equal expected depreciation?

2. What is the importance of uncovered interest parity? Under what conditions should it hold? How is uncovered parity related to covered interest parity?

3. What are absolute and relative purchasing power parity? When relative PPP holds, how does the real exchange rate change? 

4. What are some reasons for deviations from absolute PPP? From relative PPP? Do real exchange rates depreciate or appreciate over the long run (why)?

Answer rating: 100% (QA)

1 The forward premium is the difference between the forward exchange rate and the spot exchange rate expressed as a percentage It should equal expecte... View the full answer