Question : 77. What would you expect to occur if the rate of : 1284456

77. What would you expect to occur if the rate of expected inflation in the United States is considerably lower than expected inflation in Germany? 
A. The expected spot rate of €/$ will increase.
B. The current spot rate of €/$ will increase.
C. The dollar should appreciate against the euro.
D. The dollar should depreciate against the euro.

78. What would you expect to be the relationship between real rates of interest in Japan and the United States if inflation is expected to be 3% in Japan and 6% in the United States? 
A. Japan’s real interest rate should be 3% higher than in the United States.
B. Japan’s real interest rate should be 3% lower than in the United States.
C. Japan’s real interest rate should be half as high as in the United States.
D. Real interest rates should be equal in both countries.

79. Where would you prefer to invest, and why, if nominal rates are 10% in the United States and 25% in Holland, while the expected rates of inflation are 5% and 19%, respectively? Assume investments of equal risk. 
A. Invest in Holland due to higher nominal rate.
B. Invest in United States; real return is 1.1% higher.
C. Invest in United States; real return is 0.1% higher.
D. Invest in Holland; real return is 0.24% higher.

80. You have the opportunity to invest in the United States at 6% or invest in an equally risky Australian investment that offers 20%. This is too good to be true! The current exchange rate is A$1.65/$. Which of the following do you suspect about this 1-year investment? 
A. Expected inflation is higher in the United States.
B. The 1-year forward exchange rate is A$1.8679/$.
C. Real interest rates are higher in the United States.
D. The Australian dollar is selling forward at an 8.48% premium relative to the dollar.

81. The French franc is currently worth $0.15 and it’s selling in the 1-year forward market at a 10% premium relative to the dollar. Approximately what rate would you expect to pay for a 1-year loan in France if the rate would be 10% in the United States? 
A. 10.00%
B. 11.62%
C. 14.55%
D. 20.88%

82. What is the expected spot rate of ¥/$ 1 year from now if the current spot rate is ¥106/$ and the yen is selling 1-year forward at ¥114/$? 
A. ¥78.9/$
B. ¥98.0/$
C. ¥106.0/$
D. ¥114.0/$

83. The spot exchange rate of British pound(£) is $1.6000/£. The annual inflation rate in US$ is 4% and 8% in the United Kingdom. What will be the anticipated exchange rate at the end of the year if PPP is valid? 
A. $1.5407/£
B. $1.6466/£
C. $1.6000/£
D. $1.6480/£

84. The current 1-year nominal interest in the United States is 7%. If the anticipated inflation for the coming year in the United States is 2.5%, what is the real interest rate in the U.S.? 
A. 4.21%
B. 4.39%
C. 4.50%
D. 7.18%

85. Current 1-year interest rates are 4% and 8% in the United States and Spain, respectively. The anticipated inflation in the United States is 2%. If International Fisher effect holds, what is the expected inflation in Spain? 
A. 4.00%
B. 4.04%
C. 5.92%
D. 6.00%

86. Suppose that:

What arbitrage gains can be achieved if the bank quotes a rate of 75 yen per Swiss francs? 
A. 8%
B. 9%
C. 10%
D. 11%