1) ABC International can borrow $4,000,000 at LIBOR plus a spread of 0.65 percent per annum on a three-month rollover basis from Barclays in London. Three month LIBOR is currently 5.5 percent. Suppose that over the second three-month interval LIBOR falls to 5.0 percent. How much will ABC pay in interest to Barclays over the six-month period for the Eurodollar loan?
$ 50,000
$100,000
$118,000
$120,000
2) Suppose the price indexes in Mexico and the U.S., which both began the year at 100, are at 160 and 103, respectively, by the end of the year. If the exchange rate began the year at Mex$4.5 = $1 and ended the year at Mex$5.9 = $1, then the change in the real value of the peso (a "-" indicates a real devaluation) during the year is
a. 0%
b. -5.0%
c. 18.5%
d. -8.2%