1.In New York, the EUR is quoted at EURUSD1.505 –

  1. 1.In New York, the EUR is quoted at EURUSD 1.505 – 1.508 (bid- ask). In Paris, the EUR is quoted at EURUSD 1.507 – 1.509 (bid- ask). Is locational arbitrage possible?

o  Yes

o  No 

  1. 2.Two countries, Cambria and Nubira, have nominal interest rates of 5 percent and 10 percent, respectively. (Assume annual compounding.) These interest rates are inferred from the yields of government debt instruments and are applicable over the next four years. The currencies of these two countries, the Cab and the Nub (ISO codes are CAB and NUB) are freely traded in markets without any governmental restrictions. The current exchange rate is CABNUB = 2. Estimate the value of CABNUB at t=4 years. (use x.xxxx)
  2. 3.Two countries, Cambria and Nubira, have nominal interest rates of 5 percent and 10 percent, respectively. (Assume annual compounding.) These interest rates are inferred from the yields of government debt instruments and are applicable over the next four years. The currencies of these two countries, the Cab and the Nub (ISO codes are CAB and NUB) are freely traded in markets without any governmental restrictions. The current exchange rate is CABNUB = 2.What is the annual rate of change of CABNUB?  (use p.pp%)
  3. 4.The EUR is currently traded at a level of EURUSD = 1.35. Economists estimate the inflation rates to be 2 percent in the United States and 3 percent in Europe. Using the PPP, estimate the value of EURUSD in two years.
  4. 5.During the past year, the consumer price indexes (CPI) of the United States and the Eurozone rose by 2 percent and 5 percent, respectively. If PPP holds, what is the percentage change in the value of the EUR over the same time period? (use p.pp%).