Assignment: Short written response
1) Define Purchasing Power Parity (PPP) theory. Based on PPP, would you expect the price of a TV to be the same in India as it is in Australia? Give reasons to justify your answer.
2) Collect monthly data on the spot exchange rate between the Australian Dollar and Chinese Yuan from July 2012 to June 2015. Plot the data and briefly comment on the exchange rate behaviour.
3) Discuss 3 factors that affect the exchange rate. Use graphs to explain the changes.
4) Define a currency option. Using a well-articulated example show how a currency option might be used to manage currency risk.