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1. Explain the difference between covered and uncovered interest rate parity.

2. In 2007, according to the CIA World Factbook, Zimbabwe had an inflation rate of 976% per annum-the world's undisputed inflation leader. Botswana, its neighbor to the east, had an inflation rate of 11.4%. If PPP holds, how would you expect their currency exchange rates to move over the next 12 months?

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