Q1.Why is selecting an exchange rate regime both an important and difficult decision for the government?(7 marks)

Q2.How can a devaluation of a currency help improve balance of trade when the immediate effect is further deterioration of the balance of trade?(7 marks)

Q3.Three dealers quote the following rates:

$1.3297/;$1.5585/ ;1.1722/

Based on the quoted rates, what are the possible proceeds from triangular arbitrage assuming the arbitrager can start thearbitrage with 1,000,000 units currency?(3 marks)

Q4.The U.S. dollar suddenly changes in value against the euro moving from an exchange rate of $0.8919/euro to $0.8719/euro. Determine if the $ has depreciated or appreciated and by how much?(3 marks)