Currency Exchange Rates

10 questions

1. 1. Suppose that a Swiss watch that costs 400 francs in Switzerland costs $500 in the United States. The exchange rate between the franc and the dollar is:
   1 franc = 0.8 US dollars1 franc = 1.20 US dollars1 franc= 1.25 US dollars
2. 2. Which of the following market scenarios will cause the dollar to appreciate against the yen? Expectations that the U.S. economy will have:
   The US economy growing at a faster rate than JapanHigher future interest rates in the US than in JapanMore rapid money supply growth in US than Japan
3. 3. Assume that the United States faces an 8 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power-parity theory, the dollar would be expected to:
   Appreciate by 8 percent against the yen Depreciate by 8 percent against the yen Remain at its existing exchange rate
4. 4. The EUR/USD exchange rates change from 1.3569 (1 EUR = 1.3569 USD) to 1.3950.

   Which currency has appreciated and by what percentage?

   Euro has appreciated by 2.81%Euro has appreciated by 2.73%USD has appreciated by 2.81%
5. 5. Over the last 6 months, the spot foreign exchange rate between the U.S. dollar and Euro has moved from about EUR/USD $1.40 to about EUR/USD $1.56 (i.e., 1 EUR = 1.43 USD). What can we say about the international trade?
   This will benefit US exporters as US goods will be cheaper for European buyersThis will benefit European exporters as European goods will be cheaper for US buyersThere will be no impact on import/export due to interest rate parity
6. 6. The spot exchange rate EUR/USD is USD 1.40. In Eurozone interest rates are 3.0%and in America interest rates are 4.0%. According to interest rate parity, calculate the 12-month EUR/USD forward exchange rate. Assume annual compounding?
   EUR/USD 1.3565EUR/USD 1.3865EUR/USD 1.4136
7. 7. $1.44 / € is a direct quote for ______ currency in terms of ______ currency and an indirect quote for _______ in terms of ______ currency.
   Euro, Dollars, Dollars, EuroDollar, Euros, Euros, dollarEuro, Dollars, Euro, dollars
8. 8. The spot price for euro is $1.44/€. The nominal two year yield on US Treasuries is 0.206% and the nominal two year yield on French sovereign debt is 0.856%. If covered interest parity holds, then what is the two-year forward rate for the euro?
   1.43071.43531.4447
9. 9. We have the following bid-ask spreads:

   • EUR/USD 1.3110-13

   • USD/JPY 117.50-54

   Calculate the EUR/JPY cross exchange rate.

   154.04-13154.07-0989.63-65
10. 10. Which of the following effects suggests that following a currency depreciation a country’s trade balance worsens for a period before it improves?
    Marshall-Lerner J-curve Absorption