1. Given current spot rates of $.1042/MXN and $0.8571/C$, what is the C$/MXN cross rate?
2. If nominal British interest rates are 3% and nominal U.S. interest rates are 6%, then the British pound (£) is expected to ____ by about ____%, according to the international Fisher effect (IFE).
a. depreciate; 2.9 b. appreciate; 2.9 c. depreciate; 1.0 d. appreciate; 1.0 e. none of the above
3. Reducing international trade restrictions is likely to increase international competition in the production of goods and services?
4. Assume the following bid and ask rates of the pound for two banks as shown below:
Bid Ask
Bank C $1.61 $1.63
Bank D $1.58 $1.60
As locational arbitrage occurs:
the bid rate for pounds at Bank C will decrease; the ask rate for pounds at Bank D will increase.
5. Assume the bid rate of an Australian dollar is $.60 while the asking rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the asking rate is $.625 at Bank V. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
6. A strengthening of the US dollar versus the MXN lowers the value of US investments in Mexico?