Answer any four questions in this section; each question carries 5 marks (Answer each question in approximately 50 75 words)

1.What is suggested by the international Fisher effect?

2.Show the rationale of covered interest rate parity.

3.Defined transaction exposure.

4.What does relative PPP tell us about exchange rate determination and movement?

5.What is the balance of payments? Specify its major categories.

6.How does economic exposure differ from transaction exposure?

7.Demonstrate the relationship between absolute PPP and real exchange rates.

8.What is defined as effective exchange rate?