9. Implications of PPP. Today’s spot rate of the Mexican peso is $.10. Assume that purchasing

power parity holds. The U.S. inflation rate over this year is expected to be 7%, while the Mexican

b. Today, the spot rate of the Hong Kong dollar is pegged at $.13. Boston believes that the Hong

receivables into Hong Kong dollars.

13. Forecasting the Future Spot Rate Based on IFE. Assume that the spot exchange rate of the

a. According to the IFE, what should the spot rate of the euro in one year be?

b. If the spot rate of the euro in one year is $1.00, what is Beth’s percentage return from her

c. If the spot rate of the euro in one year is $1.08, what is Beth’s percentage return from her

d. What must the spot rate of the euro be in one year for Beth’s strategy to be successful?

16. Deriving the Forward Rate. Assume that annual interest rates in the U.S. are 4 percent, while

interest rates in France are 6 percent. If the euro’s spot rate is $1.10, what should the one-year

18. Integrating CIP and IFE. Assume the following information is available for the U.S. and Europe:

One-year forward rate —– $1.10

b. According to PPP, what is the expected spot rate of the euro in one year?

c. According to the IFE, what is the expected spot rate of the euro in one year?

19. Real Interest Rates, Expected Inflation, IRP, and the Spot Rate. The U.S. and the country

of Rueland have the same real interest rate of 3%. The expected inflation over the next year is 6

20. IFE, Cross Exchange Rates, and Cash Flows. Assume the Hong Kong dollar (HK$) value is

Today, an Australian dollar (A$) is worth $.50 and HK$3.9. The one-year interest rate on the