Question 4

a) You just returned from some extensive traveling throughout the Americas. You started your trip with $20,000 in your pocket. You spent 3.4 million pesos while in Chile and 16,500 bolivars in Venezuela. Then on the way home, you spent 47,500 pesos in Mexico. How many dollars did you have left by the time you returned to the U.S. given the following exchange rates?

b) Complete the following sentences based on your readings on International Financial Management. (One term may be used more than once)

i. Suppose the spot exchange rate is 2 US dollars per British pound. The forward exchange rate is 0.5263 pound per dollar. The pound is selling at a forward _____________.

ii. Investing in a financial instrument other than ones home currency and locking in the proceeds through the forward rate is called __________________.

iii. _______________________ states that difference between the forward and spot exchange rates is related to the interest rate differential between the currencies.

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