1. Suppose the value of the Polish zloty moves from Z 1000 = $1 at the start of the year to Z 1,800 at the end of the year. At the same time, the Polish price level changes from an index of 100 on January 1 to 134 on December 31. U.S. inflation during the year was 4.5%. If the one-year interest rate on the zloty is 44%, what was the real dollar cost of borrowing the zloty during the year?

a) 17.53%

b) 27.81%

c) -23.44%

d) -8.76%

Ans: c (PLEASE PROVIDE CLEAR STEP-BY-STEP ANSWER ON HOW TO GET THIS FIGURE)

2. Suppose the spot rates for the pound, mark, and Swiss franc prior to 1999 were $1.20, $.32, and $.40, respectively. At the same time, the associated 90day interest rates (annualized) were 16%, 8%, and 4%, while the U.S. 90day interest rate was 12%. What was the 90day forward rate (to the nearest cent) on a TCU (TCU 1 = 1 + DM1 + SFr1) if interest parity were to hold?

a) $1.92

b) $1.98

c) $1.94

d) $1.87

Ans: a ((PLEASE PROVIDE CLEAR STEP-BY-STEP ANSWER ON HOW TO GET THIS FIGURE))