Quiz 5, Forex Market, Chapter 15

1. A German sports car is selling for 70,000 euros. What is the dollar price in the United States
for the German car if the exchange rate is 0.90 euros per dollar?
2. An investor in England purchased a 91-day T-bill for $987.65. At that time, the exchange rate
was $1.75 per pound. At maturity, the exchange rate was $1.83 per pound. What was the
investor’s holding period return in pounds?
3. A Malaysian investor purchased 100 of Apple stock on January 1, 2010 at $360 per share.
Apple paid an annual dividend of $1.50 per share on December 31,2010. The Investor sold
the stock on the same day for $375 per share. The exchange rate was MYR 3.15 per USD on
January 1,2010 and MYR 3.20 per USD on December 31,2010. What is the investor’s total
return in Malaysian Ringgit?
4. The current exchange rate is 0.75 euro per dollar, but you believe the dollar will decline to
0.67 euro per dollar. If a euro-denominated bond is yielding 2%, what return do you expect
in USD?
5. The six month forward rate between British pound and USD is $1.75 per pound. If six month
interest rates are 3% in US and 150 basis points higher in England, what is the current
exchange rate?

8. During the 1997 Asian Financial crisis, the Thai baht was trading at $0.02475 per Thai baht.
The Thai baht is trading at $0.03093 per Thai baht now. What is the percentage change in
the Thai baht’s value? Would you consider it an appreciation or depreciation?

10. The Mexican peso is trading at 10 pesos per dollar. If the expected U.S. inflation rate is 2%
while the expected Mexican Inflation rate is 23% over the next year, what is the expected
exchange rate in one year?

14. A one year CD in Europe is currently paying 5% and the exchange rate is currently 0.99 euros
per dollar. If you believe the exchange rate will be 1.04 euros per dollar one year from now,
what is the expected return in terms of dollars?