1. Suppose U.S. interest rates are 10%, European interest rates are 7%, and the current spot rate is 1 Euro = 1.19 US Dollars. According to interest rate parity, what is the equilibrium forward rate (in other words, based on the forward rate, how many US dollars will 1 Euro be worth in the future)? Give your answer to four decimal places (for example if 1 Euro will be worth 1.5555 US Dollars, write your answer as 1.5555).

2.You are trying to estimate the price risk faced by a bank that owns a 30 year fixed rate mortgage that has an 8% annual rate with monthly payments of $1,100.65. The loan is for $150,000 (i.e. value of the loan originally is $150,000). You consider the change in the price (present value) of this asset if rates fall by 1%. What is the percent change in the price from rates falling 1% (suppose the change happens immediately when there are still 30 years of monthly payments remaining)? Give your answer to the closest 0.01% and enter your answer as a percentage (e.g. if your answer is one and a half percent, write 1.50).

3. Which of the following is NOT part of the Dodd-Frank Wall Street Reform and Consumer Protection Act?

• A. Increased oversight of credit ratings agencies
• B. Stricter rules for banks on capital, liquidity, and risk management
• C. Ban on use of all derivatives by commercial banks
• D. More transparency in the over-the-counter derivatives market and having more derivatives (like CDS) trade on exchanges
• E. Creation of the Financial Stability Oversight Counci l