Question: QUESTION 2 (UNIT 2) (25 MARKS) Forecast Change in Spot Rate Forward Premium/Discount Forecast Difference in Rate of Inflation Difference in Nominal Interest Rate Figure

QUESTION 2 (UNIT 2) (25 MARKS) Forecast Change in Spot Rate

QUESTION 2 (UNIT 2) (25 MARKS) Forecast Change in Spot Rate Forward Premium/Discount Forecast Difference in Rate of Inflation Difference in Nominal Interest Rate Figure 1: International Parity Conditions in Equilibrium Based on figure 1, illustrates your own hypothetical examples of the fundamental parity relations exist in a) Relation 1: Purchasing Power Parity b) Relation 2. The Fisher Effect c) Relation 3: The International Fisher Effect d) Relation 4: Interest Rate Parity e) Relation 5. Forward as Unbiased Predictor (25 marks) QUESTION 2 (UNIT 2) (25 MARKS) Forecast Change in Spot Rate Forward Premium/Discount Forecast Difference in Rate of Inflation Difference in Nominal Interest Rate Figure 1: International Parity Conditions in Equilibrium Based on figure 1, illustrates your own hypothetical examples of the fundamental parity relations exist in a) Relation 1: Purchasing Power Parity b) Relation 2. The Fisher Effect c) Relation 3: The International Fisher Effect d) Relation 4: Interest Rate Parity e) Relation 5. Forward as Unbiased Predictor (25 marks)

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