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In a free floating exchange rate regime, the demand and supply for a currency determine its price. Required: a) Discuss how relative inflation rates may

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In a free floating exchange rate regime, the demand and supply for a currency determine its price. Required: a) Discuss how relative inflation rates may influence exchange rates (7 marks) b) Discuss how relative interest rates may influence exchange rates. (7 marks) c) What arbitrage strategy can be used if the following rates are observed in the market and what will be the risk free profit amount? Show all calculations. (6 marks) USD1 = AUD1.4640 USD1 = SGD1.4640 AUD1 = SGD 1.1410

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