For the Week Five assignment, respond to the following questions:

1. Discuss the implications of the deviations from purchasing power parity for coun- tries competitive positions in the world market.

2. Explain and derive the international Fisher effect.

3. Researchers found that it is very difficult to forecast future exchange rates more accurately than the forward exchange rate or the current spot exchange rate. How would you interpret this finding?

4. Explain the random walk model for exchange rate forecasting. Can it be consistent with technical analysis?

5. Derive and explain the monetary approach to exchange rate determination.

6. Explain the following three concepts of purchasing power parity (PPP): a. The law of one price. b. Absolute PPP. c. Relative PPP.

7. Evaluate the usefulness of relative PPP in predicting movements in foreign exchange rates on: a. Short-term basis (for example, three months). b. Long-term basis (for example, six years).