False or True?

1) If a market basket of goods costs $100 in the U.S. and 70 in France, then the PPP exchange rate would be $0.70 per one .

2) The current U.S. dollar-yen spot rate is 125/$. If the 90-day forward exchange rate is 127/$ then the yen is at a forward premium.

3) A U.S. investor has a choice between a risk-free one-year U.S. security with an annual return of 4%, and a comparable British security with a return of 5%. If the spot rate is $1.43 per one , the forward rate is $1.44 per one , and there are no transaction costs, the investor should invest in the U.S. security.

4) Both covered and uncovered interest arbitrage are risky operations in the sense that even without default in the securities, the returns are unknown until all transactions are complete.

5) All that is required for a covered interest arbitrage profit is for interest rate parity to not hold.

6) COVERED interest arbitrage (CIA), is where investors borrow in countries and currencies exhibiting relatively low interest rates and convert the proceeds into currencies that offer much higher interest rates. The transaction is "covered" because the investor does not sell the higher yielding currency proceeds forward.

7) If exchange markets were not efficient, it would pay for a firm to spend resources on forecasting exchange rates.

8) In their approximate form, PPP, IRP, and forward rates as an unbiased predictor of the future spot rate lead to similar forecasts of the future spot rate.

9) Carry trade is always a profitable activity.

10) Deviations from the interest rate parity means that there is no opportunity for speculation.