1. (a) Critical discuss significance of balance of payments (BOPs) as a determinant of exchange rate. Moreover, using appropriate diagrams and the BOPs of the US and China as example, illustrate how their BOPs are expected to influence the currency values of these two currencies [25 marks are allocated for discussion on the BOP as a determinant of exchange rate, and 25 marks are allocated for the application of BOP approach as the determinant of exchange rate. Word Limit: 750 words] [50 marks]

(b) Interest rate parity (IRP) as one of the international parity conditions can be applied for exchange rate forecasts. Critically discuss the adjustment process of exchange rates S(DC/FC) if the exchange rate deviates from the parity relationship implied by the IRP. [Word Limit: 750 words] [50 marks] [Total 100 marks]