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DE Os allows for independent domestie monetary policies 156 points): What is the key factor that determines the gain from trades? (A Country's relative productivity advantage (3) Country's economic site (C) Country's consumption basket composition (D). Country's absolute productivity advantage Question 2. (30 points) Arbitrages in the FX Market: For each of questions 2.1 through 2.2 below, please write your answers in the answer template sheet (though you may need to do some calculations, no need to show the calculation on the template sheet). The following 3 exchange rates are available for trades in the FX market (we assume that there are no bid-ask spreads): IGBP =2 USD; TUSD - 100 JPY; 1GBP = 150 JPY 2.1 (15 points): Let's adopt an American investor's perspective. Comparing the direct and indirect ways: in which way GBP is cheaper for the American investor? How much (in terms of USD) does the American investor make as an arbitrage profit per 100 USD notional value? (Reminder the indirect way for the American investor to buy GBP is to buy JPY first. In aus P = 100 JP contrast, the direct way for the American investor to buy GBP does not involve JPY). 2.2 (15 points): Let's adopt a UK investor's perspective. Comparing the direct and indirect ways in which way USD is cheaper for the UK investor? How much (in terms of GBP) does the UK investor make as an arbitrage profit per 100 GBP notional value? 100 GBP (Reminder: the indirect way for the UK investor to buy USD is to buy JPY first. In contrast, the direct way for the UK investor to buy USD does not involve JPY). Question 3. (20 points) Inflation vs. exchange rate: For each of questions 3.1 through 3.3 below, please write your answers in the answer template sheet (though you may need to do some calculations, but do not need to show any calculation in the template sheet). There are two producer countries (U.S. and Japan), and one consumer country (Luxembourg). The U.S. produces American rice and Napa wine, Japan produces Japanese rice and Japanese wine (sak). The local prices of products (that is, the price given in terms of the currency of the roducer of the product) are assumed constant (do not change over time) and are as follows: Sound of American rice = 5 USD; 1 bottle of Napa wine = 12 USD. mund of Japanese rice = 600JPY; 1 bottle