Current Exchange Rates: $1.40 = 1 British Pound and 1.2 Euros = $1

Current one-year Interest Rates: 0% in Switzerland, 4% in Britain, and 2% in the US

11. What should the cross rate be between Euros and Pounds?

a) .6 Euros per Pound

b) .86 Pounds per Euro

c) 1.17 Pounds per Euro

d) 1.68 Euros per Pound

12. If interest parity holds true, what is the expected exchange rate one year from now?

a) .7 Dollars per Pound

b) .73 Pounds per Dollar

c) 1.37 Pounds per Dollar

d) 1.53 Dollars per Pound

13. In the currency markets, $1 = 0.7 British pound and 1 Euro = $1.15. Wolverine Cola produces cherry cola in England at a cost of 1.1 British pound per unit. The product is sold in France for 1.4 euros. In terms of U.S. dollars, how much profit is Wolverine realizing on each unit sold?

a. $0.04 b. $0.35 c. $0.75 d. $1.04