Suppose that the U.S. Open ticket costs $100 and the British Open ticket costs 50 and the exchange rate is $1.43. How much does the British Open ticket cost for an American attending the British Open? (3 pts)

2.Draw the demand for and supply of the U.S. dollar in each of the following cases. Diagram and explain in words the effect of each of the following events in the short run. Make sure to properly label the axes. In each case, assume the two countries under consideration are important trading partners.

a)There is an increase in the real interest rates in the United States relative to Japan.(3 pts)

b)Inflation in Japan fell relative to the inflation rate in the United States.(3 pts)

c)The Japanese expect the value of the U.S. dollar to decline.(3 pts)

3.Explain the J-curve with a graph AND words explaining the reason it is shaped as a J.(4 pts)

4. In this problem, begin with dollars and end up with dollars. If you have the following spot exchange rates:(2 pts each)

$0.32/rand

$1.32/DM

4 rand/DM

a.How would you engage in arbitrage to profit from these three rates (explanation)?

b.What is the possible profit for each dollar used initially?

c.What must the value of the cross-rate be to eliminate these profits?

5.If the current spot exchange rate is $0.40/yuan, the current 30-day forward exchange rate is $0.45/yuan, the annualized interest rate on 30 day dollar denominated bonds is 12% (1% per 30 days) and the annualized interest rate on 30-day Chinese yuan-denominated bonds is 9% (0.75% per 30 days):

Is the yuan at a forward premium or discount?(2 pts)

6.Explain "The Impossible Trinity" of exchange rates with an example of each combination.(6 pts)