1. The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:
a. uncovered interest rate parity
b. the international fisher effect
c. the unbiased forward rates condition
d. interest rate parity
e. purchasing power parity
2. Suppose purchasing power parity holds between China and Japan. An increase in Chinese inflation will cause _____ of the Yuan and _____ of the yen and _____ in the Yuan/yen exchange rate.
a. a depreciation; an appreciation; an increase
b. an appreciation; a depreciation; a fall
c. a depreciation; an appreciation; a fall
d. an appreciation; a depreciation; an increase
e. a depreciation; an appreciation; no change