International Finance practice set. Thank you for the help on this in advance. Explanations with the parts that take solving would be best so I can learn and follow along on my other sets that I have that correlate. Thank you.

CHAPTER 4: 1. In the following two questions, determine whether the value of the dollar will appreciate, depreciate, or remain the same relative to the British pound. Briefly explain your answer. (Assume that exchange rates are free to vary and that other factors are held constant). a The British government imposes new trade restrictions (tariffs and quotas) on a large number of U.S. products, effectively making it more expensive for British to import from the United States. b The U.S. government cut taxes significantly, raising the after-tax return on investment in the United States. c To stimulate the U.S. economy, the Federal Reserve decided to lower its key interest rate. 2. Assume you are an arbitrager. Your bank offers the following exchange rates: Exchange rates (Dollar per pound) Spot rate $1.20 Anticipated (one year) rate $1.70 The borrowing and investing rates in the United States and United Kingdom are as follows: Annual interbank lending and borrowing rates: Borrowing Rate Investing Rate United States 20% 14% United Kingdom 12% 10% Assume that you have $3,000,000 in idle cash for 1 year. a. How many dollars would you have at the end of 1 year if the funds are invested in the United States? b. How many dollars would you have at the end of 1 year if the funds are invested in United Kingdom? (Be sure to outline the different steps involved). c. What would you recommend and why? CHAPTER 5: The following table gives the exchange rate quotations for the U.S. dollar and the British Pound on Wednesday and Thursday. Answer the questions on the basis of this information. U.S. Dollar Equivalent ($/) Thursday Wednesday 1.4270 1.4291 30-day Forward 1.4279 1.4270 60-day Forward 1.4386 1.4366 90-day Forward 1.4305 1.4375 Britain (Pound) a. Using the Thursday quotations, calculate the annualized forward premium (or discount) on the 90-day forward contract. State whether your answer is a discount or premium. b. If you were to sell dollars for immediate delivery on Thursday, what would be the pound value of $700,000? c. If you expect to receive 1,200,000 in 90 days from the Thursday quotation, how many U.S. dollars would you expect to realize by selling them forward? 1. First National Bank (FNB) has purchased Canadian dollar put options for speculative purposes. Each option was purchased for a premium of $.04 per unit, with an exercise price of $.79 per unit. First National Bank will purchase the Canadian dollars just before it exercises the options (if it is feasible to exercise the options). It plans to wait until the expiration date before deciding whether to exercise the options. In the following table, and assuming one contract size of CS10,000, fill in the blanks based on the listed possible spot rates of the Canadian dollar on the expiration date. Possible Spot Rate of Canadian Dollar on Expiration Date Exercise Option? (Yes or No) Net Profit (Loss) for FNB if Spot Rate Occurs Calculation (Proof) $.76 .78 .80 .82 .89 .91