5. The Chief Economist for your firm predicts that Swiss inflation will be -0.50 percent next year, with an inflation rate in the US expected to be 2.60 percent. The spot exchange rate between the dollar and the Swiss franc is $1.0050/SF1. Based on this forecast, use Relative Purchasing Power Parity to forecast the exchange rate for dollars and Swiss francs in one year, being careful to explain the relation of your forecast to the forward rate for an exchange of dollars and Swiss francs in one year?

6. A German government bond having a coupon rate of 2.0 percent and 10 years to maturity is priced to offer a semiannually compounded yield to maturity of -0.44 percent (-0.0044). Assuming that the semiannual coupon payments for the bond are denominated in euros and that the bond has a par value of 1000, determine the current market price for the bond.

7. Bynum Machine Tool (BMT) exports high precision lathes to Poland. BPT currently has zloty-denominated accounts receivable of Z 10 million due in 90 days. The firm can lend money in the United States at a periodic interest rate (i.e., r/4) of 0.40 percent (.0040) for 90 days. The firm can borrow zlotys in Gdansk at a periodic interest rate of 0.90 percent for 90 days. The spot exchange rate between the dollar and zloty is currently $0.2575/Z1, while the forward exchange rate for delivery of zlotys in 90 days is $0.2550/Z1. Assuming you are BPT's Corporate Treasurer, determine whether you should hedge the exchange rate risk for your accounts receivables using a forward market hedge or a money market hedge.