QUESTION 13

1. Assume the following information:

   Current spot rate of Australian dollar	=	$.64
   Forecasted spot rate of Australian dollar 1 year from now	=	$.59
   1-year forward rate of Australian dollar	=	$.62
   Annual interest rate for Australian dollar deposit	=	9%
   Annual interest rate in the United States	=	6%

   Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____percent.

   	a.	about 9.00
   	b.	about 7.33
   	c.	about 5.59
   	d.	about 8.14

1.5 points

QUESTION 14

1. The inflation rate in the United States is 3 percent while the inflation rate in Japan is 10 percent. The current exchange rate for the Japanese yen () is $0.0075. After supply and demand for the Japanese yen have adjusted in the manner suggested by purchasing power parity, the new exchange rate for the yen will be:

   	a.	$0.0066
   	b.	$0.0073
   	c.	$0.0076
   	d.	$0.0070

1.5 points

QUESTION 15

1. Assume that the New Zealand inflation rate is higher than the U.S. inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the United States. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).

   	a.	reduce; increase; appreciation
   	b.	reduce; increase; depreciation
   	c.	reduce; increase; appreciation
   	d.	increase; reduce; depreciation