1. Currencies - U.S. dollar foreign-exchange rates. May 5, 2011

Country/currency...........in US$..............per US$

BritishPound...................1.5347................0.6516

Norwegian Kroner..........0.1690.................5.9173

ThaiBaht..........................0.0310.................32.250

Suppose a Big Mac costs $3.27 in Boston, and 101 Thai Baht in Thailand. In this circumstance, what can we say is TRUE?

a.Purchasing Power Parity holds, and Big Macs are relatively cheap in Thailand

b.Purchasing Power Parity holds, and Big Macs cost the same in these two cities

c.Purchasing Power Parity holds, and Big Macs are relatively expensive in Thailand

d.Purchasing Power Parity does not hold, and Big Macs are relatively cheap in Thailand

e.Purchasing Power Parity does not hold, and Big Macs are relatively expensive in Thailand

2. Currencies - U.S. dollar foreign-exchange rates. May 5, 2011

Country/currency...........in US$..............per US$

BritishPound...................1.5347................0.6516

Norwegian Kroner..........0.1690.................5.9173

ThaiBaht..........................0.0310.................32.250

The price of an ounce of gold in New York is $1,950, and the price of the same ounce of gold in London is 1,285 British Pounds. Using the exchange rates above, what would you predict would occur in well-functioning markets based upon this information?

a.The price of gold will fall in New York and rise in London

b.The price of gold will rise in New York and will stay the same in London

c.The price of gold will rise in New York and fall in London

d.The price of gold will stay the same in both New York and London

e.The price of gold will fall in New York and will stay the same in London

3. Currencies - U.S. dollar foreign-exchange rates. May 5, 2011

Country/currency...........in US$..............per US$

BritishPound...................1.5347................0.6516

Norwegian Kroner..........0.1690.................5.9173

ThaiBaht..........................0.0310.................32.250

Mr. Charles imports light bulbs from Norway to the United States. He has a contract to purchase from a Norwegian firm 10,000 light bulbs that he plans to sell in Chicago in 30 days. Assuming that futures trading exists between U.S. dollars and Norwegian Kroner, how can Mr. Charles use such a market to hedge foreign currency risk?

a.Contract to sell Kroner at an agreed upon price in 30 days

b.Contract to buy US Dollars at an agreed upon price in 30 days

c.Futures contracts cannot be used to hedge in this circumstance

d.Contract to sell US Dollars at an agreed upon price in 30 days

e.Contract to buy Kroner at an agreed upon price in 30 days