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48) You just returned from some extensive traveling. You started your trip with $25,000 in your
pocket. You spent €7,800 traveling throughout the European Union, 5,500NKr in Norway, and
£9,100 in the United Kingdom. The exchange rates were $1 = €.8031, 1NKr = $.1422, and £1 =
$1.5649. How many dollars did you have left by the time you returned to the United States?
A) $9,404.58
B) $7,211.38
C) $5,304.49
D) $264.95
E) $3.87
49) Assume you have £100 and can exchange Can$180 for £100. Also assume you can exchange
$1 for Can$1.1417 and £1 for $1.5649. How much arbitrage profit in pounds can you earn?
Ignore transaction costs.
A) £.75
B) £ 1.09
C) £ 2.02
D) £1.96
E) £.83
50) Assume you can exchange Can$179 for £100. Also assume you can exchange Can$1.1238
for $1 and $1.6024 for £1. How much profit can you earn in U.S. dollars if you start out with
$500? Ignore transaction costs.
A) $3.01
B) $2.61
C) $3.57
D) $3.64
E) $2.90
51) How many Singapore dollars can you get for $3,600 if the indirect quote is 1.3043?
A) S$3,661.20
B) S$3,911.15
C) S$4,695.48
D) S$2,760.10
E) S$2,922.01
52) You are planning a return trip to Australia. Your hotel will now cost you $236 per night for 5
nights. You expect to spend $3,800 for food and expenses. How much will this trip cost you in
Australian dollars if the indirect quote is 1.0829?
A) A$4,598.76
B) A$4,802.48
C) A$5,094.18
D) A$4,964.92
E) A$5,392.84
53) Assume the direct quote for the Australian dollar is 0.8643 while it is 0.7627 for New
Zealand dollar. What is the cross-rate between the Australian dollar and the New Zealand dollar?
A) A$.8709 = NZ$1
B) A$.8824 = NZ$1
C) A$1.0362 = NZ$1
D) A$1.1254 = NZ$1
E) A$1.1332 = NZ$1
54) Assume the direct quote for the Swedish krona is 0.1360 while it is 1.0462 for the Swiss
franc. What is the cross-rate between the Swedish krona and the Swiss franc?
A) SKr7.6926 = Fr$1
B) SKr7.2093 = Fr $1
C) SKr1.7028 = Fr $1
D) SKr.1300= Fr $1
E) SKr.1387 = Fr $1
55) A coffee mug that suits your style costs $12.98 in the United States. If absolute purchasing
power parity exists, what will the same mug cost in Canada if the direct quote is 0.9894?
A) Can$12.84
B) Can$12.99
C) Can$13.08
D) Can$13.12
E) Can$12.92
56) A sweater you desire costs Can$68. What will the same sweater cost in the United States if
the indirect quote is 1.1417 and purchasing power parity exists?
A) $59.56
B) $64.09
C) $68.78
D) $77.63
E) $76.27
57) Assume the inflation rate in the United States is 2.2 percent. The spot rate for a foreign
currency is 0.947 while the 1-year forward rate is 0.951. What is the approximate rate of
inflation in the foreign country?
A) 2.62%
B) 2.37%
C) 1.49%
D) 1.63%
E) 1.78%
58) A gift you want to buy costs $119 in Canada. Assume purchasing power parity exists and
you can exchange $1 for Can$1.14 or you can exchange ¥119.2 for $1. How much will the same
gift cost in Japan?
A) ¥11,668
B) ¥12,443
C) ¥13,603
D) ¥15,843
E) ¥16,171
59) A fancy new coat costs SKr989.90. Assume you can exchange SKr1 for $.1402 and €1 for
$1.1806. How much will the identical coat cost in euros if absolute purchasing power parity
exists?
A) €117.55
B) €144.88
C) €163.85
D) €211.99
E) €133.33
60) Assume $1 can buy you either ¥112 or £.78. If a TV in London costs £649, what will that
identical TV cost in Tokyo if absolute purchasing power parity exists?
A) ¥35,255.45
B) ¥32,967.00
C) ¥56,696.64
D) ¥98,008.18
E) ¥93,189.74
61) Assume the spot exchange rate is A$.8629. The expected inflation rate is 2.8 percent in
Australia and 3.4 percent in the United States. What is the expected exchange rate one year from
now if relative purchasing power parity exists?
A) A$.8681
B) A$.8618
C) A$.8523
D) A$.8577
E) A$.8669
62) Assume the spot exchange rate is £.7024. The expected inflation rate in the United Kingdom
is 1.8 percent and in the United States it is 2.4 percent. What is the expected exchange rate 3
years from now if relative purchasing power parity exists?
A) £.6871
B) £.6898
C) £.6962
D) £.7066
E) £.7151
63) Assume the inflation rate in the United States is 2.8 percent. The spot rate for a foreign
currency is 1.6349 while the 3-year forward rate is 1.7084. What is the approximate rate of
inflation in the foreign country?
A) 4.37%
B) 2.02%
C) 2.42%
D) 2.41%
E) 4.28%
64) Assume the current spot rate is Can$1.0267 and the 1-year forward rate is C$1.0259. The
nominal risk-free rate in Canada is 2.5 percent while it is 2.1 percent in the United States. If you
use covered interest arbitrage, how much extra profit can you earn over that which you would
earn if you invested $1,000 in the United States for 1 year?
A) $.21
B) $4.22
C) $4.80
D) $.24
E) $0
65) Assume the current spot rate is Can$.9892 and the 1-year forward rate is Can$.9901. The
nominal risk-free rate in Canada is 3.8 percent while it is 3.9 percent in the U.S. If you use
covered interest arbitrage,how much extra profit can you earn over that which you would earn if
you invested $100 in the U.S. for one year?
A) $.16
B) −$.02
C) $.23
D) −$.19
E) $.04
66) Assume the spot rate for the Japanese yen currently is ¥111.04 per $1. The 1-year forward
rate is ¥111.62 per $1. Also assume a risk-free asset in Japan is currently earning 3.4 percent. If
interest rate parity holds, approximately what rate can you earn on a 1-year risk-free U.S.
security?
A) 4.15%
B) 3.08%
C) 2.86%
D) 2.46%
E) 3.94%
67) Assume the spot rate for the British pound is currently £.1.5604 while the 1-year forward rate
is £1.5587. A risk-free asset in the United States is currently earning 2.6 percent. If interest rate
parity holds, approximately what rate can you earn on a 1-year risk-free British security?
A) 2.28%
B) 2.23%
C) 2.46%
D) 2.49%
E) 2.37%
68) Assume a risk-free asset in the United States is currently yielding 2.14 percent while a
Canadian risk-free asset is yielding 2.57 percent. The current spot rate is Can$.9894. What is the
approximate 3-year forward rate if interest rate parity holds?
A) Can$1.0034
B) Can$1.0027
C) Can$1.0022
D) Can$.9973
E) Can$.9978
69) Suppose the spot rate on the Canadian dollar is Can$1.023. The risk-free nominal rate in the
United States is 2.6 percent while it is 3.25 percent in Canada. Which one of the following 1-year
forward rates best establishes the approximate interest rate parity condition?
A) Can$1.0296
B) Can$1.0164
C) Can$1.0552
D) Can$1.0867
E) Can$1.0923
70) You are considering a project in India which has an initial cost of 250,000RS. The project is
expected to return a one-time payment of 425,000RS 5 years from now. The risk-free rate of
return is 2.7 percent in the United States and 4.3 percent in India. The inflation rate is 2.2 percent
in the United States and 5.3 percent in India. Currently, you can buy 6,300RS for $100. How
much will the payment 5 years from now be worth in U.S. dollars?
A) $6,231
B) $7,060
C) $7,201
D) $7,313
E) $6,515
71) Assume the current spot rate for the Norwegian krone is $1 = NKr7.0305. The expected
inflation rate in Norway is 2.6 percent, and in the United States its 1.3 percent. A risk-free asset
in the U.S. is yielding 2.2 percent. What risk-free rate of return should you expect on a
Norwegian security?
A) 2.8%
B) 3.3%
C) 3.5%
D) 1.7%
E) 1.9%
72) The expected inflation rate in Finland is 3.67 percent while it is 2.45 percent in the United
States. A risk-free asset in the United States is yielding 3.21 percent. What real rate of return
should you expect on a risk-free Finnish security?
A) 2.91%
B) 4.15%
C) 6.20%
D) 4.43%
E) 3.15%
73) Assume the expected inflation rate in the United States its 2.8 percent while a risk-free asset
in the United States is yielding 3.5 percent. A similar asset in Norway earns a rate of 4.8 percent.
What is the inflation rate in Norway if the international Fisher effect applies?
A) 3.2%
B) 3.4%
C) 4.3%
D) 4.6%
E) 4.1%
74) You are expecting a payment of €630,000 three years from now. The risk-free rate of return
is 3.4 percent in the United States and 2.9 percent in Euroland. The inflation rate is 2.5 percent in
the United States and 2.1 percent in Euroland. Assume you can currently buy €82 for $100. How
much will the payment 3 years from now be worth in U.S. dollars?
A) $808,288
B) $779,933
C) $819,949
D) $671,321
E) $684,169
75) You are expecting a payment of Can$150,000 four years from now. The risk-free rate of
return is 3.9 percent in the United States and 4.6 percent in Canada. The inflation rate is 3
percent in the United States and 4.2 percent in Canada. Assume the current exchange rate is
Can$1 = $.87. How much will the payment four years from now be worth in U.S. dollars?
A) $138,887
B) $126,909
C) $99,300
D) $166,184
E) $177,285
76) You want to invest in a project in Canada. The project has an initial cost of Can$318,000 and
is expected to produce cash inflows of C$126,000 a year for 3 years. The project will be
worthless after 3 years. The expected inflation rate in Canada is 3.2 percent. The applicable
interest rate in Canada is 12.7 percent. Assume the current spot rate is Can$1 = $1.12. What is
the net present value of this project in U.S. dollars using the foreign currency approach?
A) $8,407
B) $11,714
C) −$21,249
D) −$23,708
E) $703
77) You want to invest in a riskless project in Sweden that has an initial cost of SKr428,000 and
is expected to produce cash inflows of SKr231,000 a year for 2 years. The project will be
worthless after 2 years. The expected inflation rate in Sweden is 1.7 percent while it is 2.6
percent in the United States. A risk-free security is paying 3.8 percent in the United States.
Assume the current spot rate is $1 = SKr7.51. What is the net present value of this project in U.S
dollars using the foreign currency approach?
A) $31,811.70
B) $3,799.21
C) $1,951.11
D) $93,684.44
E) $110,043.00
78) Assume today you can exchange $1 for £.7998, while last week £1 was worth $1.2506. Also
assume you converted £500 into dollars last week and then converted your dollars back to
pounds this week. What is your net profit or loss in pounds?
A) £.1708
B) £.1149
C) £.3018
D) £.3302
E) £.2108
79) Assume today you can exchange $1 for €.8026, while 1 month ago €1 was worth $1.2272.
Assume you converted €300 into dollars last month and then converted your dollars back to
euros this week. What is your net profit or loss in euros?
A) €3.82
B) −€4.51
C) −€3.78
D) €3.49
E) −€4.91
