1- Interest rate parity holds that investors should expect to earn the same return in all countries after adjusting for risk. Explain what exchange rate risk is? Give examples

2- The volatility inherent in a floating exchange rate system increases the uncertainty of cash flows that must be translated from one currency into another. This increase in uncertainty is exchange rate risk. What impact does relative inflation have on interest rates and exchange rates?

3- Purchasing power parity, sometimes referred to as the law of one price (LOP), implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries. Explain what a convertible currency is. Give examples.

4- A currency is convertible when it is traded on the world currency exchanges and when the issuing country stands ready to redeem the currency at market rates. What is the difference between spot rates and forward rates?