Q.1 What is PPP? Define and explain. What is the MacPPP Index for.

Q.2 Choose two currencies (e.g. $ / and $ / ) and perform the calculations in Exhibit 7.4 using software of your choice (e.g.

Excel). Define and explain each of the concepts you use in this exercise (e.g. definition of mean, variance,

etc.). Explain your results.

Q.3 Choose two currencies (e.g. $ / and $ / ) and perform the calculations in Exhibit 7.5 using software of your choice (e.g.

Excel). Define and explain each of the concepts you use in this exercise (t-test, R2

, estimation method, etc.).

Explain your results. (see chap. 3, problems 7 and 8)

Q.4 Using the Garman-Kolhagen (1983) formula, calculate the option premium for two sets of exchange rates

(e.g. $ / and $ / ) for different exercise prices (5 exercise prices). You will have to estimate the volatility of the two series.

Calculate the delta, gamma, vega, elasticity of your two options (see appendix chap. 20). What is volatility

implicit? Do your calculations in a software of your choice (e.g. Excel).