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Answer to question 2
(a) Purchasing Power Parity: This states that the prices of goods should be same between countries over a period of time. The future spot rate of a foreign currency will be different from current spot rate which will be equal to inflation rate at equilibrium.
International Fisher Effect: The future spot rate of a foreign currency will be different from current spot rate which will be equal to nominal interest rate at equilibrium. As per this theory the currency whose interest rates are will depreciate as the nominal rates are higher.
Interest Rate...