1. What does a negative slope coefficient in an unbiasedness regression imply about the variability of risk premiums relative to variability of expected rates of appreciation?
2. What is a carry trade?
3. What is a Sharpe ratio?
4. Do carry trades contain risks that may not be reflected in their Sharpe ratios?
5. What is a peso problem? Explain the term within the context of its original derivation. Now, explain how peso problems can generally plague the study of financial market returns.
6. How can you use interest rate differentials to understand the probability of a devaluation and the potential magnitude of the devaluation?