1. If the spot rate is CHF 1.600=$1 USD, and the expected inflation rates for Switzerland and the United States are 3% and 5% respectively, the

1. USD is expected to depreciate versus the CHF
2. USD is expected to appreciate versus the CHF
3. CHF is expected to depreciate versus the USD
4. CHF is expected to remain the same versus the USD
5. JPY would probably appreciate versus the USD and CHF

2. Suppose the Peso devalued by 15%, the hotel room in Mexico would now sell for __________Mexican Pesos which would equal ___________US dollars.

3. Suppose you exported something from Mexico to the US and the payment of 20, 000 Pesos did not have to be received until 30 days from now. Your receipt in US dollars would then be?

4. Suppose that the return on a U.K. treasury bill is eight percent annum and the return on a U.S. treasury bill is eight percent annum and that you had $1,000,000 earmarked for short term investment for a period of a month. In which of the securities would you place your money? (Assume you are not a speculator). Show your calcualtions

1 British pound (spot) $1.7748

1. British pound (30-day futures) $1.7776

5. Assume that the British pound is selling in the United States at $1.5985 spot and $1.5939 in the 180-day forward market, and that the Canadian dollar is selling in the United States at $.7336 spot and $.7422 in the 180-day forward market. Both quotes are direct. Which of the following is correct?

1. the Canadian dollar is selling at 2.3 percent premium in the forward market
2. the Canadian dollar is selling at 1.17 percent premium in the forward market
3. the Canadian dollar is selling at 1.17 percent discount in the forward market
4. the British pound is selling at .57 percent premium in the forward market

6. Assume you have $200 for an arbitrage transaction, what is your best course of action based on the following exchange rates?

$1 = 1.7 CHF

$1 = 1.4 PLN

$1 = 2.0 PLN

7. Assume you have $1,000 to invest in a triangular arbitrage transaction, what is your best course of action based on the following exchange rates?

$1 = 4.5 CHF

1 CHF = 3 DKK

$1 = 30 DKK

8. If the spot rate is CHF 1.600=$1 USD, and the expected inflation rates for Switzerland and the United States are 3% and 5% respectively, the

1. USD is expected to depreciate versus the CHF
2. USD is expected to appreciate versus the CHF
3. CHF is expected to depreciate versus the USD
4. CHF is expected to remain the same versus the USD
5. JPY would probably appreciate versus the USD and CHF