23. Answer all of the following parts of this question.

• Assume that the spot exchange rate of the British pound today is $1.73. What will the spot rate be in one year according to PPP if the United Kingdom experiences an annual inflation rate of 7% while the United State experiences an annual inflation rate of 2%? SHOW YOUR WORK.

Answer =$

• Assume that the spot exchange rate of Singapore dollar today is $0.70. The one-year interest rate is 11% in the United States and 7% in Singapore. What will the spot rate be in one year according to the IFE? What is the force that causes the spot rate to change according to the IFE? SHOW YOUR WORK.

Answer = $

• The one-year risk-free interest rate in Mexico is 10%. The one-year risk-free rate in the U.S. is 2%. Assume that interest rate parity exists. The spot rate of the Mexica peso today is $0.1400. What is the one-year forward rate premium? What is the one-year forward rate of the peso? SHOW YOUR WORK.

Answer: Premium discount= Forward Rate = $