Question 1: Define forward contracts and list two problems with forward

contracts.

Question 2: Discuss two factors that affects current account balance and two

factors that affects capital (financial) account balance, clearly indicating the

direction (positive or negative) of the impact.

Question 3: Explain the monetary model of exchange rate, with reference to

PPP and the quantity theory of money.

Question 4: Define currency and interest swap and provide an example of a 3-

period currency and interest swap between two parties.