1.Country M fixes its exchange rate with the US$, then

a)the interest rate on Country M's currency should always be equal to the US$ interest rate

b)the interest rate on Country M's currency should always be higher than the US$ interest rate

c)the interest rate on Country M's currency should always be lower than the US$ interest rate

d)the interest rate on Country M's currency should be lower than the US$ interest rate if Country M's currency is expected to devalue relative to the US$.

e)none of the above is true.

Answer:____________________________

2.Based on the prior studies in the accuracy of exchange rate forecasters:

a)On average, the forecasters do a better job of forecasting the exchange rate than the forward rate does.

b)The forecasters can do a better job of forecasting the exchange rate than the forward rate doesbut only when they are forecasting the yen/US$ exchange rate

c)The forecasters can do a better job of forecasting the exchange rate than the forward rate doesbut only when they are forecasting the /US$ exchange rate

d)Forecasters that use technical analysis can do a better job of forecasting the exchange rate than the forward rate does

e)None of the above.

Answer:_________________________

3.A standard commodity basket costs $400 in the U.S. and 150 in the U.K., and the current spot exchange rate S($/)=$2/.According to theories based on purchasing power parity (PPP), the US$ is expected to _(_____________)_ against the pound.