1. Define the nominal exchangerate of Mexico with respect to the US.2. One dollar currently buys 3pounds on the foreign exchange market. In a week’s time it is expected to buy 5pounds. Is the dollar expected to appreciate or depreciate with respect to thepound? Answer the same question assuming that the dollar is expected to buy 1pound in a week’s time. 3. The price of a loaf of bread is$1 in the United States, whereas it is 2 pounds in England. The prevailingexchange rate between the dollar and the pound is $1 for 4 pounds. Is this asustainable exchange rate? If not, describe the changes that will bring theexchange rate to equilibrium. 4. Answer question 6 with theassumption that the exchange rate is $1 for 1 pound. 5. Provide a brief explanation ofthe purchasing power parity theory of exchange rates. Also state it utilizingthe concept of the real exchange rate of a country.6. Distinguish between thecurrent/trade account and the capital/financial account in a nation’s BOP.Explain the following terms – trade deficit, trade surplus, capital accountdeficit, capital account surplus. 7. Assume a nation’s BOP has atrade and a capital account. When can this nation’s BOP be said to be inequilibrium?8. Assume a nation runs a currentaccount deficit and a capital account surplus that is smaller than thisdeficit. What steps is the central bank of the country taking to make thisscenario possible?9. Assume a nation runs a currentaccount surplus and a capital account deficit that is smaller than thissurplus. What steps is the central bank of the country taking to make thisscenario possible?10. Utilizing the concept of thetrade deficit, derive the supply curve of pesos in the peso-dollar market. Drawand label a graph depicting this curve.11. State the interest paritycondition. Provide a brief explanation of the reasoning behind it.12. Utilize the concepts of thecurrent account surplus and the interest parity condition to derive the demandcurve for pesos in the peso-dollar market. Draw and label a graph depictingthis curve.13. Assume the prevailing floatingexchange rate is above the rate that ensures equilibrium in the peso-dollarmarket. Explain the process via which the rate will fall to equilibrium.14. Assume the prevailing floatingnominal exchange rate is below the rate that ensures equilibrium in thepeso-dollar market. Explain the processvia which the rate will rise to equilibrium.15. Assume the prevailing exchangerate in a fixed exchange rate regime is fixed aboveequilibrium (undervalued). Explain thesteps the central bank of the country is taking to make this a possiblescenario.16. Assume the prevailing exchangerate in a fixed exchange rate regime is fixed below equilibrium(overvalued). Explain the steps thecentral bank of the country is taking to make this a possible scenario.