11. A textbook sells for $75 in the U.S. market. Exchange rates are such that 1 British pound () equals $1.58 U.S. dollars. Assume that purchasing power parity holds, what should the textbook sell for in Britain?

a.$47.47

b. 75.00

c.118.50

d.47.47

12. Suppose that 288 yen could be purchased in the foreign exchange market for three U.S. dollars today. If the yen is expected to appreciate by 8% tomorrow, how many yen could two U.S. dollars buy tomorrow?

a. 178 yen

b. 231 yen

c. 350 yen

d. 467 yen

13. The US has a _________________ because foreigners invest more in the US than we invest in foreign countries.

a Current Account Surplus

b Current Account Deficit

c Capital Account Surplus

d Capital Account Deficit

Use the following information for questions 14-15

The current spot rate is $.40/SF. The 6-month forward rate is $.41/SF. A call option that expires in 6-months on 100,000 SF with a strike price of $.40/SF is selling for $1,900. A put option that expires in 6-months on 100,000 SF with a strike price of $.40/SF is selling for $100. Six months from now, the spot rate will be $.39/SF (this information is unknown right now, but Im telling you).

14. If you entered into a contract to sell 100,000 SF in the forward contract, how much would you have made (lost)?

a Lost $2,000

b Lost $1,000

c Made $1,000

d Made $2,000

15. If you bought the put option, how much would you have made (or lost) including the original investment?

a Lost $900

b Lost $100

c Made $900

d Made $1,100