1, Interest rate parity suggests that an exchange rate should change over time based on the difference in interest rates between foreign versus domestic risk-free interest-bearing securities as of today. Is this True or False?

2, Suppose that the one-year interest rate is 3 percent in the United States and 1 percent in Germany (eurozone), and the one-year forward exchange rate is $1.20/. What must the spot exchange rate be?

a. 1.2238

b. 1.2484

c. 1.1535

d. 1.1767

3, Suppose that the one-year interest rate is 1.5 percent in Italy (eurozone), the spot exchange rate is $1.25/, and the one-year forward exchange rate is $1.30/. What must the one-year interest rate be in the United States?

a. 2.40%

b. 2.44%

c. 4.00%

d. 5.56%