Answer Happy

1. If the covered interest rate parity (CIRP) is
satisfied, a forward discount is expected in the FX market when the
foreign money market investment offers a higher return than the
domestic money market investment. Is the statement true or false?
Back up your assertion.
2. What is the condition under which the covered
interest rate parity (CIRP) coincides with the uncovered interest
rate parity (UIRP).
3. FX dealers not only transact foreign currencies in
the external currency market but also are engaged in traditional
banking activities such as accepting deposits and extending loans.
Describe the sequence of comparing the return on foreign money
market investments with the return on domestic money market
investments in the presence of bid and ask(ed)
rates.
4. What is implied by the “peso problem” for the
FX rate if domestic interest rates are higher than foreign interest
rates? Assume that the CIRP is upheld by international
investors.