1. The USD/MXN spot FX is 18.91. You can borrow or deposit USD for one year at 2.36%. You can borrow or deposit MXN for one year at 8.12%. What is the 1-year forward you would quote in the market (take to the nearest 4 decimals)?

2. Argentinas government has been dealing with months long issues with currency depreciation and an inability for the International Monetary Fund to accelerate financial aid. The government is now extending maturities on bonds unilaterally triggering a technical default. The market becomes concerned with Argentina actually having a true missed payment and subsequent principal cram down. What is most likely to happen when the news of an Argentina government default is announced?

a. The JPY (Japanese Yen) depreciates against most currencies

b. The JPY appreciates against most currencies

c. The EUR (Euro currency) depreciates against most currencies

d. The ZAR (South African Rand) appreciates against most currencies

3. You work on a FX trading desk. A client calls and asks you the deposit rate you can guarantee them in the Malaysian Ringgit (MYR) currency for one year. You have the below information. What deposit rate can you offer the client as a guarantee you can secure them? Your main funding currency is USD. Answer in percentage points to the fourth decimal (e.g. 2.5000% is 2.5000).

USD/MYR Spot: 4.1090

USD/MYR 1-yr Forward FX: 4.1695

USD 1yr Interest Rate: 2.4400%

4. You are analyzing the returns of an investment fund over the last 2 years. Returns and inflation during that time are listed below in the table. What was the real return during year 1? Answer in percentage points to the nearest 4th decimal.

Return Inflation

Year 1 7.20% 3.90%

Year 2 2.10%. 4.20%

5. You are analyzing the returns of an investment fund over the last 2 years. Returns and inflation during that time are listed below in the table. What was the real return during year 2? Answer in percentage points to the nearest 4th decimal.

Return Inflation

Year 1 7.20% 3.90%

Year 2 2.10%. 4.20%

6. You are preparing a research report analyzing what a Taylor Rule implies for the target rate that the Federal Reserve should have. Suppose that inflation is currently at the target goal (2.0%) and real GDP is at its potential output level. How much would the Taylor Rule suggest the target rate should be changed if inflation were to suddenly increase by 1.0 percentage points to 3.0%? Answer in percentage points. Refer to slide 10 in the "Interest Rates and Econ" presentation file.