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1.

Answer - (a) Risk adjusted option

A risk adjusted option is a course of action that can be made available, usually at a cost, which improves financial results under certain conditions.

2.

a) The comparative advantage theory says that in a global economy every country would benefit if they produce goods and services where they are more efficient and buy goods and services which can be produced more efficiently by other countries and in place sell them goods and services where they are more efficient and in this way all the countries should benefit from comparative advantage. Comparative advantage is a relative term that shows the ability to produce a good at a lower opportunity cost comparative to other country. According to this theory even if one country does not have absolute advantage in producing a good then it would have relative advantage if it produces the good where the opportunity cost is low.

b) Fixed exchange rate the central bank is obligated to buy and sell its currency at the fixed rate and this can cause sometimes and arbitrage situation in the market and in todays volatile market maintaining fixed exchange rate can be a difficult task since the central bank will have to interfere very often to buy and sell and although the impact on monetary policy is more stable with respect to fixed exchange rate but this is slightly a difficult task. Moving from fixed rate to managed floating rate, the central bank will let the exchange rate move upward or downward to a certain range, here also the bank will have to interfere when one of the upper or lower limits is hit but here the central bank interreference will be slightly less and it is letting the market move within a range. This can actually help to reduce the volatility, bringing more stability for export and import of goods and services and the impact of current account deficit would be managed to at certain extent more easily on the capital account.