Problem 2 After your successful 8-year stint as the head of a foreign central bank, you decide to return to the United States. You realize that through your job youve amassed a sizable international network of wealthy financiers and bankers. So you decide to take advantage of this network by starting a hedge fund. You hire a team of fresh UO econ and business graduates, and raise $500M of initial capital from your wealthy friends/acquaintances. Your fund, Duck Capital, specializes in real estate investment. Part (a) (5 pts.) When you first raise $500M, you deposit all of it in your account with Gold- man Sachs in other words, your investment portfolio is completely liquid. Through some private information sources, you know that in a month the United States will be hit with positive oil price shocks (oil prices will spike due to exogenous causes). You also know that the Federal Reserve is cur- rently very concerned with inflation, and wants to maintain the inflation rate at the current level at all costs. Based on all of the above, should you starting investing in real estate now, or should you wait until after the oil price shock? Explain all of your assumptions and their implications using 2-4 paragraphs. Use as many graphs as you can the more the better. Hint: How will the oil price shock and subsequent monetary policy shock affect asset prices? Part (b) (5 pts.) A year after the events described in Part (a), you decide to liquidate your real estate portfolio completely to restart with a clean slate. Turns out youve had an extremely profitable year of investing your hedge funds capital has gone up from $500M to $1B, implying an impressive 100% annual rate of return on your investment portfolio. You get many expensive gifts in the mail from your clients as thanks for your superb performance. One day, after getting back from lunch with a prospective client, youre informed by your trusty team that US house prices have dropped massively due to some exogenous causes. You also know through your private con- nections that the Federal Reserve is highly likely to conduct countercyclical monetary policy. Should you reallocate your portfolio to real estate before or after the Fed has the opportunity to make a decision on a potential monetary policy change? Explain all of your assumptions and their implications using 2-4 paragraphs. Use as many graphs as you can the more the better. Hint: How will the Feds monetary policy change affect asset prices?

This is all the information for the question. For part a, I am looking for if I should invest in real estate before or after the oil price shock which makes oil prices go up and how the federal reserve keeping inflation rates constant affects my decision. I also am confused on how the oil price shock causes a monetary policy shock and then how that monetary policy shock causes affects asset prices. I am just confused on that chain of events. For part b, what monetary policy will the Federal Reserve set? and how does that affect my decision to invest in real estate? Shouldn't I invest after? How will their monetary policy affect asset prices I am very confused on that.