Assignment:
Question 1. "International Parity Relationships and Forecasting Foreign Exchange Rates" Answer the following:
- Discuss the implications of the deviations from purchasing power parity for countries' competitive positions in the world market.
- Researchers found that it is very difficult to forecast future exchange rates more accurately than the forward exchange rate or the current spot exchange rate. Examine the underlying factors behind these findings and make at least two recommendations for improving the forecast of future exchange rates.
Question 2. "Futures and Options on Foreign Exchange" Answer the following:
- Compare and contrast the basic differences between the operation of a currency forward market and a futures market.
- Discuss how the FX call and put option model pricing can change with respect to European option-pricing relationships.