1.Suppose a deal is struck between a consortium of Chinese SOEs, to provide cash, machinery, and technology, designed to help oil extraction and processing, to the Venezuelan Government in exchange for an equity stake in some oil fields in Venezuela. Suppose this deal radically improves the fiscal position of the Venezuelan government. Given this information, what would be your policy advice be to the Venezuelan authorities to end the inflation-depreciation spiral? Explain using theory and intuition.

2.We continue the background story from question 1, where a consortium of Chinese SOEs has offered a deal for cash, investment and technology in exchange for equity in oil fields in Venezuela. Use a bond market diagram to illustrate and explain the impact on the market for Venezuelan Sovereign Bonds. Also show, using an appropriate foreign exchange market diagram, the likely impact of this event on the Venezuelan Bolivar. Is there any link between your two diagrams? (2 Diagrams required)