extended CAPM

Extended CAPM is NOT international CAPM.

[Question]
Statement:

1. To extend the domestic CAPM to international asset pricing using the extended CAPM, one must make two additional assumptions.
1. Global investors have identical consumption baskets.
2. Interest rate parity holds throughout the world.
2. The extended CAPM assumes that exchange rate changes are predictable so that there is no real exchange rate risk.

Are both statements correct?

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Statement:

1.  
1. Correct. In order to use the extended CAPM, one must assume that global investors have identical consumption baskets.
2. Incorrect. We must assume that purchasing power parity holds throughout the world, NOT Interest rate parity.
2. Correct. The extended CAPM assumes that exchange rate changes are predictable so that there is no real exchange rate risk. If exchange rates are consistent with purchasing power parity, exchange rate changes would reflect the inflation differentials between any two countries and real exchange rate risk would be nil.