Question: ANSWER THESE TWO QUESTIONS.THANKS. Q5. Suppose the dollar and the euro, respectively, are domestic and foreign currencies. Derive the analytic framework (also called a model,

 ANSWER THESE TWO QUESTIONS.THANKS. Q5. Suppose the dollar and the euro,

ANSWER THESE TWO QUESTIONS.THANKS. Q5. Suppose the dollar and the euro, respectively, are domestic and foreign currencies. Derive the analytic framework (also called a model, can be depicted as an graph) for a forex market, where the dollar return on dollar deposits is a vertical line and the expected) dollar return on euro deposits is a downward sloping curve (with a vertical intercept affected by what factors? and how?). Indicate the location for forex market equilibrium and write the expression for (uncovered) interest parity as the market equilibrium condition. Q6. Using the model in Q5, prove that all else equal, a rise in dollar interest rates causes the dollar to appreciate against the euro while a rise in euro interest rates causes the dollar to depreciate against the euro, and that if the future dollar/euro rate is expected to rise, then today's rate will also rise for the given interest rates

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