a. What is a liquidity risk spiral? In your answer, explain the circumstances that might lead to a liquidity risk spiral, describe the different elements of such spiral, and outline the different actions that a company might take if it is in a liquidity risk spiral. b. Differentiate between interest rate parity and purchasing power parity. With the use of examples, show how both can be used to estimate implied forward rates for foreign exchange. c. You are the treasurer of a large Australian wholesale company and have recently completed cash forecasts for the next fiscal year. These forecasts have indicated that in six months' time, the company will need to borrow $A75 million for four months. The following treatment alternatives may be implemented under the company's Interest Rate Management policy. + i. Interest rate futures ii. FRA Interest rate swap iv. Interest rate option Retention (no hedge) V