6) The three-month interest rate on yen is i=1% per annum; the three-month interest rate on euros is i=5.5% per annum. Which one of the following statements is correct?

Select one:

a. In a carry trade between euro and yen for three months, the profit will be 0.0315(for each yen borrowed) if the euro has appreciated 2% against yen in the three months.

b. Based on the Uncovered Interest Rate Parity, the euro is expected to appreciate by 4.5% against yen next three months.

c. According to the asset market approach, the current spot rate should be 1.293/ if the expected three-month spot rate S₃(/)=1.250.

d. To start a carry trade, a trader can short the euro against yen in three-month forward contracts.

e. The euro is going to appreciate in the next year.

7) Which one of the following statements is correct about the exchange rates?

Select one:

a. Current interest rates are i_$=1% and i=3.5% and they will stay constant for many years. We would expect the Euro to appreciate against dollar according to the uncovered interest rate parity.

b. The European Central Bank announces to increase interest rate by 0.1%. The market consensus was 0.2% increase before the announcement. Upon the news, we would see euro to appreciate.

c. When the central bank of Australia raises interest rate to a level that is more than all traders expected, i.e. an unexpected rise in interest rate, the Australian dollar will depreciate.

d. A country with high inflation may see its currency to appreciate according to the asset market approach.

e. Price of currency futures(or forwards) will be slightly lower than the spot exchange rate at maturity.