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Question 3 Provide answers to the following questions a. It is commonly argued that high interest rates reflect the expectation of high inflation. Based on this theory, how would expectations of Asian exchange rates change after interest rates in Asia increased? Why? Is the underlying reason logical? b. T-bill Yield. You paid $98,000 for a $100,000 T-bill maturing in 120 days. If you hold it until maturity, what is the T-bill yield? What is the T-bill discount? c. A corporation is planning to sell its 90-day commercial paper to investors offering an 8.4 percent yield. If the three-month T-bill's annualized rate is 7 percent, the default risk premium is estimated to be 0.6 percent and there is a 0.4 percent tax adjustment, what is the appropriate liquidity premium? d. Choice of Monetary Policy. When does the Fed use a loose-money policy and when does it use a tight-money policy? What is a criticism of a loose-money policy? What is the risk of using a monetary policy that is too tight