In the spot market, $1 is currently equal to £0.6211. Assume the expected inflation rate in the U.K. is 2.6 percent while it is 4.3 percent

In the spot market, $1 is currently equal to £0.6211. Assume the expected inflation rate in the U.K. is 2.6 percent while it is 4.3 percent in the U.S. What is the expected exchange rate four years from now if relative purchasing power parity exists?    A.  £0.5799 B.  £0.5822 C.  £0.6105 D.  £0.6623 E.  £0.6644 E(S4) = £0.6211 × [1 + (0.026 - 0.043)]4 = £0.5799

67.

Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1925. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.    A.  $0.005 B.  $0.006 C.  $0.008 D.  $0.015 E.  $0.018 Arbitrage profit = [$1 × (C$1.2103/$1) × 1.03 × ($1/C$1.1925)] - ($1 × 1.04) = $0.005

68.

Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724. The nominal risk-free rate in Canada is 4 percent while it is 3 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.    A.  $0.018 B.  $0.023 C.  $0.029 D.  $0.031 E.  $0.035 Arbitrage profit = [$1 × (C$1.1875/$1) × 1.04 × ($1/C$1.1724)] - ($1 × 1.03) = $0.023

69.

Assume the spot rate for the Japanese yen currently is ¥99.31 per $1 and the one-year forward rate is ¥97.62 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?    A.  1.63 percent B.  2.11 percent C.  4.20 percent D.  4.96 percent E.  5.01 percent (¥97.62 - ¥99.31)/¥99.31 = 0.025 - RUS; RUS = 4.20 percent