Remember the open interest parity condition: ee - E R$ = Re + E 1. Fill in the missing entries in the table below. S/Euro Spot Rate Interest Rate on Expected Future Spot Rate Euro Deposits (S/Euro) 0.20 $1.5/Euro 0.20 $1.5/Euro 0.20 $1.5/Euro 0.20 $1.5/Euro 0.20 $1.5/Euro Interest Rate on Dollar Deposits 0.0 0.10 0.20 0.30 0.40 2. Graph the relationship between the interest rate on dollar deposits and the spot rate from part a. Make your picture big take up the top half of a page. 3. Consider the following relationship between the interest rate on dollar deposits and the money demand. Money Demand Interest Rate on Dollar Deposits 0.0 0.10 0.20 0.30 0.40 1000 900 800 700 600 Add the relationship between interest rates and the money demand to the bottom half of the graph from question 2. Make sure you use the procedure we discussed in class. 4. Suppose that the U.S. money supply is Ms = 800. What is the interest rate on U.S. dollar denominated deposits? What is the S/Euro Spot Rate? Show these points on your graph. 5. Explain in words how a change in the U.S. money supply affects the spot rate. Remember the open interest parity condition: ee - E R$ = Re + E 1. Fill in the missing entries in the table below. S/Euro Spot Rate Interest Rate on Expected Future Spot Rate Euro Deposits (S/Euro) 0.20 $1.5/Euro 0.20 $1.5/Euro 0.20 $1.5/Euro 0.20 $1.5/Euro 0.20 $1.5/Euro Interest Rate on Dollar Deposits 0.0 0.10 0.20 0.30 0.40 2. Graph the relationship between the interest rate on dollar deposits and the spot rate from part a. Make your picture big take up the top half of a page. 3. Consider the following relationship between the interest rate on dollar deposits and the money demand. Money Demand Interest Rate on Dollar Deposits 0.0 0.10 0.20 0.30 0.40 1000 900 800 700 600 Add the relationship between interest rates and the money demand to the bottom half of the graph from question 2. Make sure you use the procedure we discussed in class. 4. Suppose that the U.S. money supply is Ms = 800. What is the interest rate on U.S. dollar denominated deposits? What is the S/Euro Spot Rate? Show these points on your graph. 5. Explain in words how a change in the U.S. money supply affects the spot rate