Hi,

Could you please help me answer the questions below? I need the correct answer, and if possible, a brief explanation. Thanks very much :)

1. We would generally expect covered interest rate parity to exist in markets, but when we have covered interest arbitrage a} the market must be OUT OF equilibrium. b} a "risky" arbitrage opportunity exists. c] the market must be IN equilibrium. d} the arbitrager trades only in the spot currency exchange market 2. Which of the following is an assumption of market efciency? a} Instruments denominated in other currencies are IMPERFECT substitutes for one another. b} Transactions costs are high. c} Instruments denominated in other currencies are PERFECT substitutes for one another. d} Publicly available information is ignored in the spot but not in the forward exchange markets. 3. 111e release of international exchange rate statistics shows that the real effective exchange rate index for the U.K. pound vs the U.S. dollar decreased from 95 last year to 88 currently and is expected to fall still further in the coming year. Other things being equal, U.K to USA think this is good news and U.K. from USA think this is bad news. a} exporters; importers b} importers; exporters c} exporters; exporters d} importers; importers