On 8^th December 2014, you foresee the following possible exchange rates for Renminbi and Thai Baht:

Expected Future State	Prob(State)	RMB per $US	THB per $US
State 1	0.25	6.100	32.000
State 2	0.75	6.200	34.000

(a) Using the example of the RMB exchange rate, do the calculations to confirm the argument for using logs rather than natural numbers in RE models. In other words, demonstrate that:

(b) Show that defining expectations in log terms, the expected value of the log of the cross exchange rate (THB per RMB) does indeed turn out to be the antilog of the cross exchange rate.

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E(S)