Which of the following is NOT linked together byuncoveredinterest parity?

The domestic interest rate.

The foreign interest rate.

The current spot exchange rate.

The law of one price works well for __________ traded commodities.

All

Lightly

Heavily

Domestically

The current forward exchange rate.

Suppose that U.S. prices rise 4 percent over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso?

The dollar should depreciate.

The peso should appreciate.

The peso should depreciate.

The dollar will be worth 1.5 pesos.

Pressures in the foreign exchange market are such as to cause the British pound to depreciate with respect to the U.S. dollar. If Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar, which of the following interventions will stem the pressures for depreciation of the pound?

Britain should sell pounds and buy dollars.

Britain should do nothing as a fixed rate will not change.

Britain should buy pounds and sell dollars.

Britain should increase their money supply to create domestic inflation.

Capital controls:

Cannot be used to maintain a fixed exchange rate.

Are a socially inefficient method to maintain a fixed exchange rate.

Are optimal when disequilibria are temporary.

Are key to the success of a fixed exchange rate regime.