Question Details

Assuming that purchasing power parity (PPP)
holds, what is the current exchange rate 



i. Suppose exchange rates between U.S. dollars and Swiss francs is
SF 1.41 = $1.00 and the exchange rate between the U.S. dollar and
the German mark is $1.00 = 1.64 DM. What is the cross-rate of
Swiss francs to German marks?
a. 2.27
b. 1.41
c. 1.64
d. 0.43
e. 0.86

ii. A box of candy costs 28.80 Swiss francs in Switzerland and $20 in
the United States. Assuming that purchasing power parity (PPP)
holds, what is the current exchange rate ?
a. 1 U.S. dollar equals 0.69 Swiss francs
b. 1 U.S. dollar equals 0.85 Swiss francs
c. 1 U.S. dollar equals 1.21 Swiss francs
d. 1 U.S. dollar equals 1.29 Swiss francs
e. 1 U.S. dollar equals 1.44 Swiss francs

iii. 90-day investments in Britain have a 6 percent annualized
return and a 1.5 percent quarterly (90-day) return. In the U.S.,
90-day investments of similar risk have a 4 percent annualized
return and a 1 percent quarterly (90-day) return. In the 90-day
forward market, 1 British pound equals $1.65. If interest rate
parity holds, what is the spot exchange rate?
a. 1 pound = $1.6582
b. 1 pound = $1.8000
c. 1 pound = $0.6031
d. 1 pound = $1.0000
e. 1 pound = $0.8500
Also, expect; 1) some listing type questions (e.g. list the differences
between operating and financial leases), 2) a currency arbitrage
question, and 3) some short answer questions. Most of the exam
questions will be based on the assigned End-of-Chapter questions and
problems.





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