Question: 1. Define adverse selection. 2. Assets = $100 million, Liabilities = $70 million, Average asset duration = 3 years, Average liability duration = 2 years.

1. Define adverse selection.

2. Assets = $100 million, Liabilities = $70 million, Average asset duration = 3 years, Average liability duration = 2 years. Suppose the interest rate decreases by 4%. What will be change in net worth (in dollar)?

3.Explain how price level affects exchange rates in the long run?

4.Do the duration analysis based on the following information.

5.If a banks liabilities are $90 million and assets are $70 million, calculate the change in bank profit in case of 4% decrease in interest rates? Assume both liabilities and assets are rate-sensitive.

6.What are the functions of the IMF? What are the criticisms of the IMF?

7.Explain dollarization.

8.If expected future exchange rate of Saudi Riyal (SAR) increases, what will happen to the exchange rate of SAR now? Explain with a GRAPH. What will be change in net worth (in dollar)?

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