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Suppose U.S. interest rates are 10%, European interest rates are 7%, and the current spot...

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Accounting

  1. Suppose U.S. interest rates are 10%, European interest rates are 7%, and the current spot rate is 1 Euro = 19 US Dollars. According to interest rate parity, what is the equilibrium forward rate (in other words, based on the forward rate, how many US dollars will 1 Euro be worth in the future)?
    1. 0.8403
    2. 0.8639
    3. 1.0280
    4. 1.2234
    5. None of the above
  2. Mexico and Argentina are trade partners. Which of the following is the most likely impact of the Mexican peso depreciating compared to the Argentinian peso?
    1. Argentina will import fewer Mexican goods, hurting Mexican exports
    2. Argentina will import more Mexican goods, helping Mexican exports
    3. Mexico will import more Argentinian goods, helping Argentinian exports
    4. There will be no impact as foreign currency exchange rates dont impact trade

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