If a country's freely floating currency is undervalued in terms of purchasing power parity, its capital account is likely to be in deficit or tending toward a de ficit in surplus or tending toward a surplus 13. a. b. Subsidized by the International Monetary Fund a candidate for loans from the Workd Bank c. d. Ifthe average rate of inflation in the world rises fom 5% to 7%, this will tend to make forward exchange rates move toward smaller premiums or larger discounts in relation to the dollar larger premiums or smaller discounts in relation to the dollar no change on average car't tell what will happen 14. a. b. C. d. 15. A 150% real return in Brazil is higher than a 15% dollar return in the U.S. because arbitrage opportunities exist when the inflation controls are suspended in Brazil it depends on whether these are nominal or real returns regardess of nominal or real returns a. b. C. d. Annual inflation rates in the U.S. and Italy are expected to be 4% and 7%, respectively. If the current spot rate is $1 = L2,000, then the expected spot rate 16. for the lira in three years is $.0004591 $.0011590 $.0009892 $.0005471 a. b. C. d. Annual inflation rates in the U.S. and France are expected to be 4% and 6%, respectively. If the current spot rate is $.1250/FF, then the expected spot rate in 17. two years is $.1299 a. $.1150 $.1203 b. C. $.1335 d. 18. Suppose five-year deposit rates on Eurodollars and Euromarks are 12% and 8%, respectively. If the current spot rate for the mark is $0.50, then the spot rate for the mark five years from now implied by these interest rates is 5997 a. b. 4169 5185 C. d. 4821