1. If interest rate parity exists between country A and country B, then:

	a.	investors will prefer the risk-free investment of one country over the risk-free investment of the other country.
	b.	the interest rate in country B must equal the interest rate in country A.
	c.	significant covered interest arbitrage opportunities exist between currency A and currency B.
	d.	the percentage difference between the spot and forward rates is equal to the interest rate differential between country A and country B.
	e.	the spot and forward exchange rates between the two countries must be equal.

2.Suppose that a firm builds a factory overseas, staffs it with foreign workers, uses materials supplied by foreign companies, and finances the entire operations with a loan from a foreign bank located in the same town as the factory. This firm is probably trying to greatly reduce, or eliminate, any:

	a.	translation exposure to exchange rate risk.
	b.	interest rate disparities.
	c.	political risk associated with the foreign operation.
	d.	short-run exposure to exchange rate risk.
	e.	long-run exposure to exchange rate risk.

3.You can exchange $1 for either 0.7707 euros or 0.5331 British pounds. What is the cross rate between the pound and the euro?

	a.	.5431/1
	b.	.5331/1
	c.	.6917/1
	d.	.5505/1
	e.	.6809/1