18-1. EXCHANGE RATE If British pounds sell for $1.30 (U.S.) per pound, what should dollars sell for in
pounds per dollar?
18-2. CROSS RATE A currency trader observes that in the spot exchange market, 1 U.S. dollar can be
exchanged for 3.4 Israeli shekels or for 106 Japanese yen. What is the cross-exchange rate between the
yen and the shekel; that is, how many yen would you receive for every shekel exchanged?
18-3. INTEREST RATE PARITY Six-month T-bills have a nominal rate of 2%, while default-free Japanese
bonds that mature in 6 months have a nominal rate of 1.25%. In the spot exchange market, 1 yen equals
$0.009. If interest rate parity holds, what is the 6-month forward exchange rate?
18-4. PURCHASING POWER PARITY A television costs $750 in the United States. The same television
costs 637.5 euros. If purchasing power parity holds, what is the spot exchange rate between the euro
and the dollar?
18-7. CURRENCY APPRECIATION Suppose that 1 Danish krone could be purchased in the foreign
exchange market today for $0.16. If the krone appreciated 4% tomorrow against the dollar, how many
krones would a dollar buy tomorrow?
18-10. INTEREST RATE PARITY Assume that interest rate parity holds. In the spot market 1 Japanese
yen=$0.0094400, while in the 90-day forward market 1 Japanese yen=$0.0094426. In Japan, 90-day
risk-free securities yield 2%. What is the yield on 90-day risk-free securities in the United States?
18-11. PURCHASING POWER PARITY In the spot market, 22.4 Mexican pesos can be exchanged for 1 U.S.
dollar. A compact disc costs $15 in the United States. If purchasing power parity (PPP) holds, what
should be the price of the same disc in Mexico?