1. Ceteris paribus, an increase in the British (foreign) interest rates will make British pound investments _____ to investors, causing _____ in demand for pounds on the Forex.

1. less attractive; no change
2. more attractive; no change
3. less attractive; an increase
4. more attractive; an increase
5. more attractive; a decrease
8. 2.SupposethatthecurrentexchangeratebetweentheU.S.dollarandtheBritishpoundis1.464$/.NowfurtherassumethattheexpectedinflationrateintheU.S.forthenextyearis2.5%whiletheexpectedinflationrateinEnglandis3%.Consideringrelativepurchasingpowerparity(PPP),what1-yearforwardratewouldweexpectintermsof$?Tosolvethisproblem,usetheequationfromtheSuranovictextbookequationforrelativePPPinsection30-4.Showyourworktoreceivefullcreditforthisproblem.
11. 3. Suppose an importer, who expects to receive his shipment of raw materials worth 15,000 in three months, enters into a forward contract where E_/$ is 0.80. If at the time of delivery of the raw materials E_/$ = 0.83, how much does the trader benefit/lose by entering into the forward contract?
    1. He/she loses by $677.71
    2. He/she gains by $677.71
    3. He/she gains by $450
    4. He/she loses by $450
    5. He/she loses by $227.71