1.Assume a nominal interest rate on one-year U.S. Treasury Bills of 4.60% and a real rate of interest of 2.50%. Using the Fisher Effect Equation, what is the expected rate of inflation in the U.S. over the next year?

2.One year ago the spot rate of U.S. dollars for Canadian dollars was $1/C$1. Since that time the rate of inflation in the U.S. has been 4% greater than that in Canada. Based on the theory of Relative PPP, the current spot exchange rate of U.S. dollars for Canadian dollars should be approximately

3. Suppose that on January 1 a firm in Mexico borrows $20 million from Citibank (USA) for one year at 8.00% interest per annum. During the year U.S. inflation is 2.00% and Mexican inflation is 12.00%. The loan was taken when the spot rate was Peso 3.40/US$. At the end of the one year loan period the exchange rate was Peso 5.80/US$.Based on the above information, what is the cost to the firm of the loan in Mexican peso's (percent)?

4. Howard borrows 5,000,000 for 6 months at an annual rate of 0.60% and uses the proceeds to invest in the U.S. money market at an annual rate of 4.50%. If the spot rate today is 115/$ and the spot rate in 6 months is 113/$ Howard's net proceeds will be: