1. A. When the dollar appreciates, are US importers (US firms that import into the US) better or worse off?

B. When the dollar appreciates relative to the yuan, are Chinese importers better or worse off?

C. When the dollar depreciates, are US exporters better or worse off?

2. A. Suppose the annual interest rate paid on a $1,000 loan is $60. What is the yearly nominal interest rate?

B. Suppose that the inflation rate is 2%/year. What is the cost of borrowing?

3. Suppose the home country has an annual interest rate (i) of 1% and the foreign annual interest rate (i*) is 2%. If the spot exchange rate of home-foreign, R(h/f), is 5 then what is the forward exchange rate necessary to equalize returns in both countries?

4. A. Suppose a videogame costs $60 in the USA. If the same videogame costs $90 in Mexico. What would the exchange rate have to be between the USD and the Mexican Peso, under absolute PPP?

B. Suppose the dollar weakens so that it now the exchange rate is .75 dollars per Peso. If the price stays the same in the USA, what is the new price in Mexico?