Exam+3+Problems - Exam 3 Problems Student 1 You want to...

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Exam 3 Problems Student: ___________________________________________________________________________ 1. You want to invest in a riskless project in Sweden. The project has an initial cost of SKr3.7 million and is expected to produce cash inflows of SKr1.6 million a year for three years. The project will be worthless after three years. The expected inflation rate in Sweden is 3.6 percent while it is 4.8 percent in the U.S. A risk-free security is paying 6.5 percent in the U.S. The current spot rate is $1 = SKr6.9864. What is the net present value of this project in Swedish krona using the foreign currency approach? Assume the international Fisher effect applies. 5. In the spot market, $1 is currently equal to £0.5086. The expected inflation rate in the U.K. is 5 percent and in the U.S. 4 percent. What is the expected exchange rate one year from now if relative purchasing power parity exists? 7. You just returned from some extensive traveling throughout the Americas. You started your trip with $15,000 in your pocket. You spent 2.6 million pesos while in Chile. You spent 1.1 million bolivares in Venezuela. Then on the way home, you spent 62,000 pesos in Mexico. How many dollars did you have left by the time you returned to the U.S. given the following exchange rates? 8. You are the buyer for a cereal company. You think you will need 120,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 416
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