1. Briefly explain why PPP currency rates are more precise than the market exchange rates. (3 marks)
2. Describe factors affecting the short run exchange rate. Use the graphs of the supply and demand for the dollar assets in the foreign exchange market to demonstrate the effect of one of the factors on the exchange rate. (3 marks)
3. Compare the effects of the sterilized and unsterilized interventions in the foreign exchange market on the monetary base. Use the balance sheet of the Central bank to support your answer. (4 marks)