1. You have just landed in London with $ 790 in your wallet. Stopping at the foreign exchange? booth, you see that pounds are being quoted at $1.97/£. For how many pounds can you exchange your $790?
2. Stock Y has a beta of 1.30 and an expected return of 14.2 percent. Stock Z has a beta of .75 and an expected return of 10.6 percent.
What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?
Risk Free Rate _________%
3. A Dutch firm sells merchandise today to a British company for £500,000. The current exchange rate is €1.450/£ , the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. If the exchange rate changes to €1.375/£ the Dutch firm will realize a (gain or loss) of €________. 1012.1) _______ , _______