minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

F
t
= S
0
× [1 + (h
FC
–
h
US
)]
t
We find:
R34.50 = R37.78[1 + (h
FC
–
h
US
)]
3
h
FC
–
h
US
= (R34.50/R37.78)
1/3
–
1
h
FC
–
h
US
= -0.0298 or -2.98%
Inflation in Russia is expected to be less than that in the U.S. by -2.98% per year over this
period.
MC algo 31-21 Interest Rate Parity
The spot rate between the Japanese yen and the U.S. dollar is ¥106.57/$,
while the one-year forward rate is ¥105.73/$. The one-year risk-free rate in
the U.S. is 2.39 percent. If interest rate parity exists, what is the one-year
risk-free rate in Japan?
Explanation
105.73/106.57 = (1 +
R
J
)/1.0239
R
J
= .0158, or 1.58%
TB MC Qu. 19-8 Purchasing Power Parity If the current...
Purchasing Power Parity
If the current spot rate between the U.S. dollar and
the Swedish krona was $1 = 7.6023 krona, and if the inflation rate in the
United States was 5.6 percent and in Sweden it was 2.6 percent, then what
would be the expected spot rate in one year? (Round your answer to 4
decimal places.)
Explanation
Use equation 19-3. But the quote must be a direct quote. The spot direct quote is 1 ÷ 7.6023 =
0.1315.
Expected exchange rate = 0.1315 × (1 + 0.056 − 0.026) = $0.1354 per krona
Problem 19-18 Interest Rate Parity (LG19-5)
The spot rate between the U.S. dollar and the Taiwan dollar is $1 =
TWD30.005. Assume the interest rate in the United States is 3 percent and in
Taiwan is 2 percent.

What should be the 3-month forward exchange rate?
(Do not round
intermediate calculations and round your final answer to 4 decimal places.)

Problem 19-18 Interest Rate Parity (LG19-5)
The spot rate between the U.S. dollar and the Taiwan dollar is $1 =
TWD30.005. Assume the interest rate in the United States is 3 percent and in
Taiwan is 2 percent.
What should be the 3-month forward exchange rate?
(Do not round
intermediate calculations and round your final answer to 4 decimal places.)

Problem 21-4 Continuation of purchasing power theory [LO21-2]
From the base price level of 100 in 1981, Saudi Arabian and U.S. price levels in
2010 stood at 340 and 100, respectively. Assume the 1981 $/riyal exchange
rate was $0.82/riyal. Suggestion: Using the purchasing power parity, adjust
the exchange rate to compensate for inflation. That is, determine the relative

rate of inflation between the United States and Saudi Arabia and multiply this
times $/riyal of 0.82.