Explain the difference between hedging and speculation in the currency market and discuss the circumstances that give rise to each phenomenon.

*Please answer the questions by using SIMPLE simple language so I can understand it very well.
* please answer question 1 in 2 pages And question 2 in 2 pages.

Q1 ( 2 pages)
(a) Explain the difference between hedging and speculation in the currency market and discuss the circumstances that give rise to each phenomenon.

(b) Discuss the circumstances under which the forward rate of exchange of a currency would be at discount or a premium to the spot rate.

(c) What would be the impact on the Irish economy if the euro appreciates against the US dollar?

Q2 ( 2 pages)

(a) Explain uncovered interest rate parity and discuss its implications?
(b) What is the relationship between the spot and forward rate of a foreign currency?
(c) How does a country’s inflation rate affect its exchange rate?

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