Problems to work through 1. The yield on a 1-year bill in the U.K. is 8%, and the present exchange rate is 1 pound = U.S. $1.60. If you expect the exchange rate to be 1 pound = U.S. $1.50 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is? a) -6.7% b) 0% c) 8% d) 1.25% 2. The manager of Quantitative International Fund uses EAFE as a benchmark. Last year's performance for the fund and the benchmark are in the table. Calculate Quantitative's country selection return contribution. a) 12.5% b) -12.5% EAFE Weight Index Return on Equity Return Currency Quantitative's Weight Manager's Return on Equity c) 11.25% Eur 0.3 10% 10% 0.25 9% d) -1.25% Aus 0.1 5% -10% 0.25 8% e) 1.25% FE 0.6 15% 30% 0.5 16% Direct vs. Indirect Currency Quotes FX 1. ADR 2. Interest Rate Parity 3. 4. 5. 6. 7. Political Risk EAFE, ACWI, MSCI World Attribution Fill out with your own word.