1. Calculate the dollar rates of return on the following assets: (a) A painting whose price rises from $200,000 to $250,000. (b) A 10,000 deposit in a London bank in a year when the interest rate on pounds is 10 percent and the MM: exchange rate moves from $1.50 per pound to $1.38 per pound. (c) What would be the real rate of return on the asset in question (b) above if the price changes described above were accompanied by a simultaneous 10 percent increase in all dollar prices? 2. Imagine everyone in the world pays a tax 7 percent on interest earnings and on any capital gains due to exchange rate changes. How would such a tax alter the analysis of the interest parity condition? How does your answer change if the tax applies to interest earnings but not to capital gains which are untaxed? 3. Suppose the one-year S'euro forward rate is $1.26 per euro and the spot exchange rate is $1.2 per euro. What is the forward premium on euros (or forward discount on dollars)? What is the difference between the interest rate on one-year dollar deposits and that on one-year euro deposits (assuming no repayment risk)? 4. How would you expect a fall in a country's population to alter its aggregate money demand function? Would it matter if the fall in population were due to a fall in the number of households or to a fall in the size of the average household? 5. After the global nancial crisis, the US short-term interest rate was near or equal to zero, but never drOpped below zero. Do you think the fact that the US interest rate never drop below zero is just a coincidence, or there are some reasons for why interest rate might be bounded below by zero