Q.1 Forecasting and determining rates of change (25pts)

a) Show the relationship between uncovered interest rate parity (UIRP), purchasing power parity (PPP). the Fisher relation, covered interest rate parity (CIRP) and the no-bias hypothesis (UH) taking a numerical example. Write each of the equations.

b) Comment on the quality of the discounts. Write the equations.

c) Demonstrate the expression (equation) that represents exchange rates as an asset. This equation uses the fundamentals.

d) Use the law of iterated expectations to solve the equation obtained in c).

e) Show a comment on converting the (UIRP) to real term and using a mean reverting process. Interpret this equation by making an exchange rate prediction given a certain real interest rate.

1) Is there a connection between the random walk, the no-bias hypothesis (UH) and the atification of technical analysis. Define and explain each of the concepts.