International finance questions: What do you understand by the term ‘ Big Mac Index’? Explain the Economist Big Mac survey and its liaison (relationship and assumptions) with the purchasing-power parity theory and historic exchange rates world-wide

Question 1
What do you understand by the term ‘ Big Mac Index’? Explain the Economist Big Mac survey and its liaison (relationship and assumptions) with the purchasing-power parity theory and historic exchange rates world-wide. (10 marks)

Question 2
What do you understand by International Finance and its importance in today’s global economy? (Explain in context to the four major international financial trading categories.
(10 marks).

Question 3
What is arbitrage? Explain the five theoretical economic relationships that result from arbitrage. (Purchasing power parity(PPP), Fisher Effect (FE), International Fisher Effect(IFE), interest rate parity(IRP), Forward rates as unbiased predictors of future spot rates (UFR)) (10 marks).

Question 4
Derivatives: what function or service do they provide that a normal capital market does not?
Compare and contrast forwards and swaps. Give examples of both and explain the procedure and pricing mechanism of each. Support with graphs. (10 marks)