a.What is absolute and relative PPP? What are the assumptions of PPP?

b.What is meant by price specie flow mechanism?

c.Explain different systems of Exchange rate implemented from inception till today.

d.What will happen if the following exchange rates(involving the Australian dollar, the New Zealand dollar,and the Hong Kong dollar) are quoted in Sydney, Wellington and Hong Kong?

HKD/AUD 5.9809

NZD/AUD 1.1162

HKD/NZD 5.3860

Is there any arbitrage opportunity in the market? If yes, what is your net profit if you have 1 unit of domestic currency?e.On 25 January 2013 following rates are prevailing:

AUD/DEM 0.7200-0.7280

GBP/AUD 0.4820-0.4890

Calculate the bid and offer spread on exchange rate b/w pound and German mark expressed in indirect quotation from UK perspective?

F. Assume P=AUD1500 and P*=USD1000 and S=1.35 and transportation cost is 10 of the price of the basket.

Calculate exchange rate Under Absolute PPP and current scenario?

G. In the October 23, 1999, issue, The Economist reports that the interest rate per annum is 5.93 percent in the United States and 70.0 percent in Turkey. On the basis of the reported interest rates, how would you predict the change of the exchange rate between the U.S. dollar and the Turkish lira?