1. Using any website like the Wall Street Journal or the Economist.com, obtain quotes for foreign exchange rates for the Yen versus the US dollar, and answer the following questions (6 points) a) What is the spot exchange rate for the US dollar vis--vis the yen? 1 US dollar = 107.36 yen

b) Suppose one year ago, the spot exchange rate for the yen was 110/$. Comparing that to today's quote, has the Japanese yen appreciated or depreciated?

c) Suppose you export 100,000,000 (100 million) yen worth of goods to Japan today (what is that worth at Mondays spot rate?) But your buyer will make the payment only 90 days from now. Suppose further that the buyer will make the payment in Japanese yen only.

Suppose the actual exchange rate for the yen, 90 days from now, turns out to be 90/$. How many dollars will you get 90 days from now?

Suppose the actual exchange rate for the yen, 90 days from now, turns out to be 120/$. How many dollars will you get 90 days from now?

2. Two countries, Britain and the U.S. produce just one good, beef. Suppose that the price of beef in U.K. is 2.80 per pound, and in US, it is $3.70 per pound. (6 points)

(a) What should the $/ spot exchange rate be, according to PPP theory?

(b) Suppose that the price of beef is expected to rise to 3.10 in the U.K. and to $4.65 in the US by the same time next year. What should the one year forward $/ exchange rate?

(c) Given your answers to parts (a) and (b), and given that current interest rate in U.K. is 10%, what would you expect current U.S. interest rates to be?