1. What is relative purchasing power parity? Assuming relative PPP holds, fill in the table below:

2. Discuss why the empirical support for PPP and the law of one price is weak in recent data.

3. As a foreign exchange trader, how would you react to each of the following news items as it flashes on your computer screen? Why? a. Mexicos oil reserves prove to be much smaller than touted earlier. b. The Social Credit Party wins the national elections in Canada and promises generous expansion of the supply of money and credit. c. In a surprise vote the Swiss government passes a law that will result in a large increase in the taxation of interest payments from Switzerland to foreigners.

CAN YOU PLEASE ANSWER ALL QUESTIONS AND EXPLAIN HOW YOU GOT THE RESULTS FOR QUESTION 1

this table is for questio #1

Inus,t 0.03 0.04 Es/E, t 2 2.1 2.2 Es/E, t-1 , t -0.08111 -0.01 0.002381 0.014545 0.026522 2 2.1 2.2 0.06 0.07 0.08 2.4 2.5 2.6 2.7 2.4 2.5 2.6 2.7 2.8 2.9 0.05 0.061538 0.072963 0.084286 0.1 0.11 2.9 0.13 Inus,t 0.03 0.04 Es/E, t 2 2.1 2.2 Es/E, t-1 , t -0.08111 -0.01 0.002381 0.014545 0.026522 2 2.1 2.2 0.06 0.07 0.08 2.4 2.5 2.6 2.7 2.4 2.5 2.6 2.7 2.8 2.9 0.05 0.061538 0.072963 0.084286 0.1 0.11 2.9 0.13