1. Suppose 90-day investments in Britain have a 6% annualized
return and a 1.5% quarterly (90-day) return. In the U.S.,
90-day investments of similar risk have a 4% annualized return and
a 1% quarterly (90-day) return. In the 90-day forward market,
1 British pound equals $1.65. If interest rate parity holds,
what is the spot exchange rate?
1 pound = $1.8000
1 pound = $1.6582
1 pound = $1.0000
1 pound = $0.8500
1 pound = $0.6031
2. A box of candy costs 28.80 Swiss francs in Switzerland and
$20 in the United States. Assuming that purchasing power
parity (PPP) holds, what is the current exchange rate?
1 U.S. dollar equals 0.69 Swiss francs
1 U.S. dollar equals 0.85 Swiss francs
1 U.S. dollar equals 1.21 Swiss francs
1 U.S. dollar equals 1.29 Swiss francs
1 U.S. dollar equals 1.44 Swiss
francs
3. Suppose 144 yen could be purchased in the foreign exchange
market for one U.S. dollar today. If the yen depreciates by
8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?
155.5 yen
144.0 yen
133.5 yen
78.0 yen
72.0 yen
4. Suppose 6 months ago a Swiss investor bought a 6-month
U.S. Treasury bill at a price of $9,708.74, with a maturity value
of $10,000. The exchange rate at that time was 1.420 Swiss
francs per dollar. Today, at maturity, the exchange rate is
1.324 Swiss francs per dollar. What is the annualized rate of
return to the Swiss investor?
-7.92%
-4.13%
6.00%
8.25%
12.00%
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