Question 1 1 pts A 'bubble' solution for the movement of the exchange rate O will depend on the monetary policy of each country O is constant over time O is driven by the interest rate differential between home and foreign countries O is independent of monetary policy or other fundamental drivers of the exchange rate Question 2 1 pts A collapse of a fixed exchange rate driven by pessimistic expectations O will happen only if the the country has a very low level of international reserves O exists only if foreign reserves are in the intermediate range O can happen only if there are negative shocks to the economy's GDP O can happen whatever the size of foreign reservesQuestion 3 1 pts If long run PPP holds and countries follow inflation targeting policies O we can predict the nominal exchange rate given the initial real exchange rate at long horizons the real exchange rate will be a random walk O we can predict the nominal exchange rate based on the real exchange rate even in the short run O out of sample forecasting of the nominal exchange rate cannot do better than a random walk Question 4 1 pts A rise in the relative liquidity yield of US relative to non US government bonds O will lead to a US dollar depreciation O will raise the relative interest rate on US government bonds O will not affect the US exchange rate O will lead to an appreciation of the US dollar