1. You purchase a put option on Swiss francs for a premium of $.02, with an exercise price of $.61. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $.58, your net profit per unit is:
a. −$.03. b. −$.02. c. −$.01. d. $.02. e. none of the above
2. Interest rates are 10% in the U.S. Foreign interest rates are 13%. If you expect the foreign currency to depreciate 6%, where are you better off investing?
3. Assume the British pound is worth $1.60, and the Canadian dollar is worth $.80. What is the value of the Canadian dollar in pounds?
4. Assume that the U.S. inflation rate rate is higher than the New Zealand inflation rate. This will cause U.S. consumers to ____ their imports from New Zealand and New Zealand consumers to ____ their imports from the U.S. According to purchasing power parity (PPP), this will result in a(n) ____ of the New Zealand dollar (NZ$).
a. reduce; increase; appreciation
b. increase; reduce; appreciation
c. reduce; increase; depreciation
d. reduce; increase; appreciation
5. Assume that British interest rates are higher than U.S. rates, and that the spot rate equals the forward rate. Covered interest arbitrage puts ____ pressure on the pound's spot rat and ____ pressure on the pound's forward rate.