1. What are the three basic theoretical approaches to exchange rate determination?

2. Even though PPP is the most widely accepted exchange rate determination method it is poor at predicting exchange rates. Why?

3. Which of the three major theoretical approaches seem to put the most weight on the demand and supply of money? What is its primary weakness? 4. Explain how technical analysis may be used to forecast currencies

5. When is direct intervention likely to be useful? When is it likely to be [least successful?

6. What is overshooting?

7. The Ecuadorian sucre (SE) suffered from hyper-inflation in the 1990s, falling from S5,000 to the USD to S25,000. What was the percentage change value?

8. On Friday, June 17, 2016, the Central Bank of Nigeria (CBN) floated the currency. Previously fixed against the U.S. dollar at USD/NGN=196.50, the naira closed at USD/NGN=279.50 on Monday, June 20, the first day of trading following the float. Soon after, the NGN fell to USD/NGN=324.50 by August 18. Similarly, the naira fell from EUR/NGN=221.2001to EUR/NGN= 316.7294 on June 20, and EUR/NGN=347.7721 on August 18.

a) What was the percentage change in the value of the Nigerian naira versus the dollar the first trading day?

b) What was the percentage change in the value of the naira versus the dollar by August 18, 2016?

c) What was the percentage change in the value of the Nigerian naira versus the euro the first trading day?

d) What was the percentage change in the value of the naira versus the euro by August 18, 2016?

9. The Turkish lira (TL) was officially devalued by the Turkish government in February 2001 during a severe political and economic crisis. The Turkish government announced on February 21 that the lira would be devalued by 20%. The spot exchange rate on February 20 was TL68,000/$. a) What was the exchange rate after devaluation?

b) What was percentage change after falling to TL100,000/$?

10) Australia Japan USA

CPI Forecast 2.4% 0.0% 2.8%

3 month interest rate 6.90% 0.73% 4.72%

1 Year Govt Bond 6.23% 1.65% 4.54%

10. As at the close this Friday, what are the current spot rates for USD/JPY AUD/JPY AUD/USD

11. Assuming PPP and using forecast inflation (in the table) as a proxy for changes in the price of goods, forecast the following spot rates in 1 year from now USD/JPY AUD/JPY AUD/USD

12. Assuming international Fisher, which is one version of PPP applies for the coming year, forecast the following spot rates one year from now (hint: International Fisher uses ratio of nominal interest rates): USD/JPY AUD/JPY AUD/USD

13. If the 1 year government bond is the nominal interest rate and the CPI is expected inflation, what are the "real" interest rates in: Australia Japan USA

14. Using the 3-month interest rates in the above table calculate the 90-day forward rates for: USD/JPY AUD/JPY AUD/USD