Using the Uncovered Interest Parity condition to illustrate the following cases and explain the adjustment process in each case:

1. (i) Home's interest rate falls below the world interest rate for one period [7]
2. (ii) The world interest rate increase for one period and the home economy raises

their interest rate in line [5]

1. (iii) Starting from the nominal UIP condition, derive the real UIP condition. [8]