Long question II (30 marks) 7. Exchange Rate Market, and RMB The following data and figure are provided: Table 1: USD/CNY Exchange Rate Date USD/CNY Parity Closing rate (one day Implied rate before) dollar index 30 Mar 2020 7.0447 7.096 27 Mar 2020 7.0427 7.0747 26 Mar 2020 7.0692 7.1148 25 Mar 2020 7.0742 7.0631 24 Mar 2020 7.0999 7.0886 23 Mar 2020 7.0940 7.096 A) On March 23, 2020. U.S. Fed announces the infinite quantitative easing policy, push the U.S. interest rate level to zero. Use the Foreign Exchange Rate Model to predict the short-run appreciation/depreciation of RMB. Is it consistently with the parity rates listed in the above Table 17 (7 marks) B) What would be the short run implication if market believes that U.S. quantitative easing is a long-run policy? (6 marks) C) In the second half year of 2020, the Chinese fully recovered from the Covid-19 crisis, and its reported that current account surpluses reaches its highest level in the recent years. Together with this fact, use the long run exchange rate determinant theory to explain the following USD/CNY parity rate dynamics in Figure 1: (horizontal line is date and vertical line is the USD/CNY parity rate) (7 marks) Figure 1: The dynamics of USD/CNY 7.2 7.0 6.6 ChinanoMay 19 Dec 2019 22 Jun 2020 17 Dec 2020D) Suppose the USDICNY rate is determined rigorously following the \"two pillar\" exchange rate policy, use the information of parity rate and closing rate (one day before) to back out the implied dollar index, 1) ll in your answer in the Table 2. You only need to provide the numbers for 23 May 2021, 27 May 2021 and 26 Mar 2021. 2) mm two pillar exchange rate policy {i.e., what is the purpose to specify the parity rate in this method, what is the meaning of each variable in the rule?) (10 marks) Here is the two pillar policy, with WUSD = 0.2159 3551 5i\" Xi\" log(3tcp = 0.5 log 3:? + 0.5(1 wysog XE: Date USDICNY Parity rate 28 Nlay 2021 6.3353 Table 2: USDICNY Exchange Rate in 2021 2? hrlay 2021 6.4030 Closing rate (one day before) Implied dollar index 26 hrlay 2021 6.4099 25 Nlay 2021 6.4283 5. 4193 100