1. Assume you are an American importer who imports christmas toys from China and has to pay 250,000 chinese Yuans at the end of 60 days. If you don't hedge this transaction in the forward market, you face a loss if the Chinese Yuan:
A. is fixed in value
B. Depreciates against the dollar
C. Appreciate again the dolar
D. either appreciates or depreciates against the dollar
2. Assume that the United States faces an 3 percent inflation rate while no (zero) inflation exists in Japan. According to the purchasing-power parity theory, the dollar would be expected to:
a. Appreciate by 3 percent against the yen
b. Depreciate by 3 percent against the yen
c. Remain at its existing exchange rate
d. None of the above