0.1 Forecast and determination of exchange rates (25pts)

a) Show the relationship between the uncovered interest rate parity (UIRP), the interest rate parity

purchasing power (PPP), the Fisher relationship, the covered interest rate parity (CIRP) and the

of the non-bias (UH) by taking a numerical example. Write each of the equations.

b) How is the quality of the forecast assessed? Write the equations.

c) Demonstrate the expression (equation) that represents exchange rates as an asset. This equation

uses the fundamentals.

d) Use the law of iterated anticipations to solve the equation obtained in c).

e) Show how to convert (UIRP) to real term and use a mean reversion process

(mean reverting process). Interpret this equation by making an exchange rate prediction in the event

a certain real interest rate.

f) Is there a link between the random walk, the unbiased assumption (UH) and the use of analytics?

technical. Define and explain each of the concepts.