2.

Suppose the spot and three-month forward rates for the yen are 102.32 and 102.27, respectively. What is the approximate annual percent difference between the inflation rate in Japan and in the U.S.?

1.67 percent

-1.21 percent

2.28 percent

1.93 percent

-.20 percent

You want to import $180,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $.01663?

Rs11,887,424

Rs8,415,096

Rs8,367,594

Rs10,823,812

Rs10,238,911

4.

Assume the spot rate for the British pound currently is .6369 per $1. Also assume the one-year forward rate is .6421 per $1. A risk-free asset in the U.S. is currently earning 3.2 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security?

4.18 percent

4.92 percent

3.67 percent

4.04 percent

4.57 percent

5.

You observe that the inflation rate in the United States is .78 percent per year and that T-bills currently yield 2.94 percent annually. Using the approximate international Fisher effect, what do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 3.53 percent per year?

.88 percent

2.24 percent

4.22 percent

1.87 percent

1.37 percent

6.

Which one of the following statements is correct?

A firm can record a profit on its income statement from a foreign subsidiary even when that subsidiary has no profit thanks to exchange rate risk.

Accounting translation gains and losses are recorded in the equity section of the balance sheet.

The use of forward rates increases the short-run exposure to exchange rate risk.

Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.

There is no known method of reducing long-run exchange rate risk.