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Unformatted text preview: Version Fin 536 Sample Quiz 3 Solutions Name____________Section_4pm/7pm Note: You must review all potential topics for the quiz. This sample quiz does not cover all testable topics. 1. Fill out the answers. a. (PPP forecast)Assume that the inflations rates in Japan and in the U.S. are forecasted to be 1% and 3% respectively, if the current spot rate is ¥90/$, then the forecast of the exchange rate is ¥___88.25_ __$ in a year. b. (Forward forecast) Sometimes, we can simply use the forward price as our forecast of future foreign exchange rate. Suppose that the current spot rate is $1.5/€. The interest rate is 1% in the U.S. and 2.5% in Europe. Then your forecast of spot rate in one year is ___1.48____ _ using the forward rate as the forecast. c. (Pass-through) The price of a European car is €10000. The current exchange rate is S($/€)=1.40. The price of the car in the U.S. is then $_14,000__ ____ . If the U.S. dollar depreciates by 10% against the Euro, the price of the car in the U.S. is then $_15,400___ with 100% pass- through. If the price of the car is actually $15,000, the degree of pass- through is ____71.43%__ ....
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- Spring '11
- International Finance, Spot rate, Foreign exchange market, United States dollar, current spot rate