chapter 13: exchange rates and the foreign exchange market, an asset approach

Question 1

spot exchange rate

Answer 1

exchange rate for immediate transactions

Question 2

forward exchange rate

Answer 2

exchange rate for transactions happening in the future (whose price is decided in the present)

Question 3

parameters for asset desirability

Answer 3

(real) rate of return, risk and liquidity

Question 4

interest parity condition (enforced when there is no possibility of arbitrage)

Answer 4

(1+R_$) = E_€/$ (1+E_€)E^e_$/€