1. According to the simple monetary model of exchange rates, on what do exchange rates depend? What is the effect of a monetary contraction on exchange rates? How does this change if goods market prices are slow to adjust?
2. Choose two theoretical models (Interest rate parity, PPP models)for the determination of your selected exchange rates. ?
AUS and JPY
3. Bob deposits the amount of $105 in his bank account today, and plans to deposit the amount of $175 in the same account one year from today, and finally plans to deposit the amount of $225 in the same account two years from now. If the interest rate is 6.95%, how much will Bob have accumulated in his account three years from today?