(1) Write out the uncovered interest parity condition, which is the equilibrium condition in the bonds market. (2) The equilibrium exchange rate can be inferred from the interest parity condition. Suppose the Federal Reserve is holding R = 3.6%, while the European Central Bank is holding R* = 3.2%; and suppose the expected future exchange rate is one dollar for one euro. What is the current equilibrium exchange rate? Suppose the current exchange rate is actually one dollar for one euro. Explain how the actions of market participants would push the exchange rate to the equilibrium rate you found. (3) Suppose the Fed conducts an open market operation in which it sells government bonds. Use the US financial markets diagram to show what this would do to US interest rates and the exchange rate. Explain why you shift any curve (4) Combine the graph showing the interest parity condition and one showing money demand and supply to demonstrate simultaneous equilibrium in the money market and the foreign exchange market. How would a decrease in the U.S. money supply affect the Dollar/Euro exchange rate and the U.S. interest rate? Illustrate your answer graphically and explain