Question 1 (20 marks): Covered and Uncovered International Financial Investments 1. What is the international financial investment with Cover? How does covered interest arbitrage work? Please discuss with an example. 2. What is the international financial investment without Cover? How does uncovered interest arbitrage work? Please discuss with an example. Question 2 (20 marks): Determinants of Exchange Rate What are the determinants of exchange rate in both long-run and short-run? Question 3 (60 marks): Internal and External Balance with Fixed Exchange Rate 1. Under the fixed exchange regime, if the country begins with a surplus in its overall balance of payments, to maintain the fixed exchange rate, explain the following a) How does the central bank intervene through monetary policy to affect the balance of payment? b) How does the central bank intervene through fiscal policy to affect the balance of payment? 2. Under the fixed exchange regime, if the country begins with a deficit in its overall balance of payments, to maintain the fixed exchange rate, explain the following a) How does the central bank intervene through monetary policy to affect the balance of payment? b) How does the central bank intervene through fiscal policy to affect the balance of payment?