Question: 1 What does PPP tell us about exchange rate determination? 2 Demonstrate absolute PPP and relative PPP with a simple case. 3 What is a

1 What does PPP tell us about exchange rate determination?

2 Demonstrate absolute PPP and relative PPP with a simple case.

3 What is a real exchange rate?

4 What does big Mac parity tell us about PPP? Why PPP may or may not hold?

5 What are the reasons for deviations from PPP?

6 Show the rationale of covered interest rate parity.

7 How does interest rate parity work to eliminate arbitrage opportunities? Show it with an example.

8 How do transaction costs reduce arbitrage opportunities or prevent arbitrage opportunities from materialising?

9 What is suggested by the Fisher effect?

10 Discuss the relationships between changes in exchange rates, inflation rates and interest rates in the framework of IFE.

11 Demonstrate the relationships and links between various international parity conditions, and explain the meanings and implications of each of them

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