1.

1
Fill in the following table, assuming the law of one price prevails.

2. Using the flexible price monetary model (monetary approach), discuss how the exchange rate be affected if
there is:
a. An increase in the domestic interest rate
b. An increase in foreign income
c. An increase in the foreign money supply

3. Describe the chain of events leading to exchange rate determination for the following cases:
(a) An increase in domestic money supply
(b) Increase in world relative demand for domestic products
(c) Increase in relative domestic output supply

4. Discuss how the nominal and real exchange rates are effected by a tariff on imports from abroad.

5. Suppose the expected annual real interest rates are 6% and 3% in Japan and Thailand respectively.
What do you expect the real exchange rate between Thai baht and Yen over the next year?