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i)Explain carefully the concepts of market efficiency and the Rational Expectations Hypothesis, and outline some of their key implications with reference to spot and forward
i)Explain carefully the concepts of market efficiency and the Rational Expectations Hypothesis, and outline some of their key implications with reference to spot and forward exchange rates. ii) Describe in detail how the efficiency of exchange rate markets has been tested. How has the possibility of risk premia been dealt with in such tests? Outline the results of such tests and what challenges they pose for exchange rate theory.
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