1. What is uncovered interest rate parity?
2. In the 2000s, the interest rate in China was higher than that in the U.S. most of the time while the RMB exchange rate was either fixed or gradually appreciating against USD. How did China maintain its monetary policy independence? What are the difficulties involved?
3. In spite of Chinas control of international capital mobility, the foreign exchange reserve rose at an increasing rate before 2008 as shown in the following diagram. Why did that happen?
4. Between 2004 and 2009, the rise in the foreign exchange reserve was larger than the rise in the monetary base. The relative change was reverse after the global financial crisis in 2008. Explain the government intervention in the foreign exchange and money markets involved and the possible change in policy position.