Need answer today (4/13).  Questions are very straightforward.

1. Exchange Rates. Use Table 23?1 to answer these questions:
a. How many euros can you buy for $100? How many dollars can you buy for 100 euros?
b. How many Swiss francs can you buy for $100? How many dollars can
you buy for 100 Swiss francs?
c. If the euro depreciates with respect to the dollar, will the direct
exchange rate quoted in Table 23?1 increase or decrease? What about
the indirect exchange rate?
d. Is a United States or an Australian dollar worth more?



2. Exchange Rate Relationships. Look at Table 23?1.
a. How many Japanese yen do you get for your dollar?
b. What is the 1-year forward rate for the yen?
c. Is the yen at a forward discount or premium on the dollar?
d. Calculate the annual percentage discount or premium on the yen.
e. If the interest rate on dollars is 6.5 percent, what do you think
is the interest rate on yen?
f. According to the expectations theory, what is the expected spot
rate for the yen in 1 year?s time?
g. According to purchasing power parity, what is the expected
difference in the rate of price inflation in the United States and
Japan?

Table 23-1:

                                                          Forward Rate
                           Spot Rate                  3 Months           1 Year
Europe
  EMU (euro)                 .9644                      .9605             .9503
  Sweden (krona)            9.3924                     9.4554            9.6239
  Switzerland (franc)       1.5231                     1.5206            1.5143
  U.K. (pound)              1.4994                     1.491             1.4658
Americas
  Canada (dollar)           1.5331                     1.5372            1.5502
  Mexico (peso)             9.7550                     9.91              10.39
Asia/Paci?c/Africa
  Australia (dollar)        1.7518                     1.7657            1.8066
  Hong Kong (dollar)        7.8000                     7.7993            7.8021
  Japan (yen)             123.380                    122.81            120.63
  Philippines (peso)       50.2450                    50.686            52.825
  South Africa (rand)      10.2787                    10.5532           11.3212

Source:  "Lecture 7:  Exchange Rates and Investment Decisions" by
Professor Day, University of Texas at Dallas (Fall 1999)
http://www.exinfm.com/training/6301l7.rtf

Direct quotation is "the dollar price of one unit of foreign currency."  

Therefore:

1a. $100/$0.9644/euro=103.69 euro.  100 euro*$0.9644/euro=$96.44
1b. $100/$1.5231/sf=65.66 sf.  100 sf*$1.5231/sf=$152.31
1c. decrease (fewer dollars per euro).  Increase (indirect quotation
is 1/direct quotation).
1d. Australian dollar ($1.75 USD required to purchase one Australian
dollar if this is direct.  However, given that the Japanese quote is
not direct but indirect (at least compared to reality), and this is
the opposite of reality, I am concerned there is a lack of consistency
of presentation in the table (not all rates are direct)).

2a.  I am answering these based on reality, which is that the Japanese
quotes are indirect.  123.38 yen/$
2b.  120.63 yen/$
2c.  Premium.  The yen is gaining in value vs. the USD.  $1/120.63 yen
= $.00829/yen > $1/123.38 yen = $.00811/yen
2d.  (1/120.63-1/123.38)/1/123.38*100=2.28%
2e.  1+rUS/1+rJPN=F$/Y/S$/Y  Therefore, rJPN = .00829/$.00811(1.065)-1=8.93%.
2f.  "...Expectations theory argues that forward rates are exactly
equal to the spot exchange rate that is expected on the delivery date
specified in the forward contract...."  Therefore, the expected spot
rate in one year is 120.63 yen/$.
2g.  1+IJPN/1+IUS=1+rJPN/1+rUS.  1.089/1.065=1.023.  Therefore,
Japanese inflation is expected to be 2.3% greater than in the US.

Sincerely,

Wonko

Wow, $40 and all that typing in info/charted numbers rather than
learning the basics of exchange rates.  I'm sure glad I paid attention
in class :)