1. A Nintendo Game costs $700 in the United States. The same game costs 1,800 French francs (FF). If purchasing power parity holds, what is the spot exchange rate between the FF and the dollar?
a. 1FF = $5.07
b. $1 = 4.35 FF
c. $0.917 = $5.07FF
d. 1 FF = $0.3889
?2. Toyota builds a new car in Japan for a cost plus profit of 1,950,000 yen. At an exchange rate of 134.Y:$1 the car sells for $14,552.24 in Indianapolis. If the dollar rises in value, against the yen, to an exchange rate of 145Y:$1, what will be the price of the car?
a. $14,833.90
b. $13,448.28
c. $15,445.30
d. $13,558.45
3. Assume that interest rate parity holds. In both the spot market and the 90-day forward market 1 Japanese yen equals 0.0086 dollar. The 90-day risk-free securities yield 4.6 percent in Japan. What is the yield on 90-day risk-free securities in the United States
a. 1.05%
b. 4.3%
c. 1.15%
d. 4.6%