1. You look in the newspaper and see the following FX rates for the Mexican Peso: 0.0493 (in US $) and 20.3025 (Per US $). On a trip to Mexico, you purchase an item for 1,000 pesos. How much does this cost you in US dollars?

2. You look in the newspaper and see the following FX rates for the British pound (): 6 (in US $) and 0.625 (Per US $). If you had $100, how many pounds could you exchange this for?

3.

1. Suppose U.S. interest rates are 9%, British interest rates are 11%, and the current spot rate is 1 = $60. You estimate that the equilibrium one-year forward rate is Ft=$5712, meaning 1 should be worth $5712 in theory (or alternatively, 0.6365 = $1). In practice, however, the forward rate seen in the market is $1.65 (meaning 1 = $1.65 or 0.6061 = $1). In order to profit from this, you do the following steps:
   1. (1) Borrow US dollars at 9% in the US (means youll owe $1.09 at end of the year for each dollar borrowed).
   2. (2) Sell dollars for pound in the spot market. For each dollar, youll get (1/1.6) or 0.625.
   3. (3) Invest your pounds in the UK at 11% (at year end youll get 0.625*1.11=0.6938).
   4. (4) Enter a forward rate agreement to buy $1.09 (amount youll owe in a year) by selling your pounds at the forward rate of 0.6061 = $1. Hence, in order to buy $1.09, it will cost 0.6606.
   5. (5) In a year, you complete the forward rate agreement and use the pounds you have invested to convert 0.6606 into $1.09. You can then repay your $1.09 loan in the US.

What is your net gain (in pounds per dollar borrowed)?