1.Suppose that the one-year interest rate is 5.0 percent in the United States; the spot exchange rate is $1.20/; and the one-year forward exchange rate is $1.16/. What must the one-year interest rate be in the euro zone to avoid arbitrage?

5.0%

6.09%

8.62%

none of the options

2.The Fisher effect can be written for the United States as:

Ai$=_$+E(_$) +_$E(_$)

B_$=i_$+E(_$) +i$E(_$)

Option A

Option B

Option C

Option D

3.The benefit to forecasting exchange rates

are greatest during periods of fixed exchange rates.

are nonexistent now that the euro and dollar are the biggest game in town.

accrue to, and are a vital concern for, MNCs formulating international sourcing, production, financing, and marketing strategies.

all of the options

4.According to the research in the accuracy of paid exchange rate forecasters,

as a group, they do not do better job of forecasting the exchange rate than the forward rate does.

the average forecaster is better than average at forecasting.

the forecasters do better job of predicting the future exchange rate than the market does.

none of the options

5.The moving average crossover rule

is a fundamental approach to forecasting exchange rates.

states that a crossover of the short-term moving average above the long-term moving average signals that the foreign currency is appreciating.

states that a crossover of the short-term moving average above the long-term moving average signals that the foreign currency is depreciating.

none of the options

6.Assume the following information regarding U.S. and European annualized interest rates:

CurrencyLendingRateBorrowing Rate

U.S. Dollar($)6.73%7.20%

Euro()6.80%7.28%

Trensor Bank can borrow either $20 million or 20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days? (Format for answer: $XXX,XXX)