Q4. Answer the following short questions, which cover our lessons from the medium and short run patterns observed in exchange rate movements. 1) What contributes to medium-run exchange rate variation? What time intervals do we consider when it comes to adjustments in these medium-run trends? 2) What three factors explain short-run variation in exchange rates? List and describe each factor. 3) What is price discovery? How does this relate to arbitrage opportunities? 4) State and define the interest rate parity relationship. 5) Why are multinational firms particularly exposed to exchange rate risk? How do in vidual investors hedge themselves away from exchange rate risk