(a) According to the law of one price, if the exchange rate between British pound and Australian dollar is 1 = $2, a laptop that is sold for 500 in London, calculate what should be the selling price of the same laptop in Sydney?

(b) After six months, if the price of the laptop in question (a) above expected to decrease from 500 to 450 in London and the price of the same laptop decreases to $810 in Sydney, calculate the 6 months forward exchange rate in pound/dollar and dollar/pound. Comment about the changes in the values of the two currencies.

(c) Given your answers to (a) and (b) above, and given that the current interest rate in Australia is 4 per cent per annum, what would you expect the current interest rate to be in UK?

(d) If UKs nominal interest rate is 15% and inflation rate is 5%, calculate the real interest rate in UK?

(e) You are a Manager of an international business firm in Sydney. Your firm has exported some goods in Japan, the export earning 1,000,000 is receivable by next 3 month. Current exchange rate is $1 = 100. You expect that the Japanese Yen may depreciate to $1 = 120 by the next 3 months. Required: (i) Explain the implication(s) to your business if Yen depreciates.

(ii) Except buying forward and using swaps, explain the collection strategy you will take to minimize your business risk if any due to the expected change in the exchange rate.