1). Assume that the Swiss franc has an annual interest rate of 8% and is expected to depreciate by 6%

against the dollar. From a U.S. perspective, the effective financing rate from borrowing francs is:

a)8%

b)14.48%

c)2%

1.52%

e)14%

2). Assume that the U.S. interest rate is 11% while the interest rate on euros is 7% (18%). If euros are

borrowed by a U.S. firm, they would have to ________ against the dollar by _______ in order

to have the same effective financing rate from borrowing dollars.

a)Depreciate; 3.74%

Appreciate; 3.74%

c)Appreciate; 4.53%

d)Depreciate; 4.53%

10). Assume the U.S. one-year rate is 8%, and the British one-year interest rate is 6%.

The one-year forward rate of the pound is $1.97. The spot rate of the pound at the beginning of the year is $1.95. By the end of the year, the pounds spot rate is $2.05.

Based on the information, what is the effective financing rate for a U.S. firm that takes out a one-year, uncovered British loan?

a)12.4%

b)7.1%

c)13.5%

d)10.3%

11.4%

I know the answer to these problems but I need help with the solutions thank you

1. D

2. B

10. E