1.Akron Co. needs dollars. Assume that the local one-year loan rate is 15 percent, while a one-year loan rate on euros is 7 percent and that an international borrowing is subject to a transaction cost of 0.045 percent. By how much must the euro appreciate to cause the loan in euros to be more costly than a US dollar loan?

2.Boca Inc. needs $4 million for one year. It currently has no business in Japan but plans to borrow Japanese yen from a Japanese bank because the Japanese interest rate is three percentage points lower than the US rate. Assume that interest rate parity exists; also assume that Boca believes that the one-year forward rate of Japanese yen will exceed the future spot rate one year from now. Will the expected effective financing rate be higher, lower, or the same as financing with dollars? Explain.

3.Fort Collins, Inc., has $1 million in cash available for 30 days. It can earn 1 percent on a 30-day investment in the United States. Alternatively, if it converts the dollar to Mexican pesos, it can earn 1.5 percent on a Mexican deposit. The sport rate of the Mexican peso is $0.12. The spot rate 30 days from now is expected to be $0.10. Further assume that Collins face a corporate tax rate of 34 percent and a capital gain tax rate of 10 percent. Should Collins invest its cash in the United States or in Mexico? Show your calculations.