Suppose the U$.$S$.$ dollar$-$euro exchange rate is $1\mathrm{.}20$ dollars per euro, and the U$.$S$.$ dollar$-$Mexican peso rate is $0\mathrm{.}10$ dollar per peso. What is the euro$-$peso rate?

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$3.$ Suppose the dollar$-$yen exchange rate is $0\mathrm{.}01$ dollar per yen. Since the base year, inflation has been$2$ percent in Japan and $10$ percent in the United States. What is the real exchange rate? In real terms, has the dollar appreciated or depreciated against the yen?

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$4.$ Which of the three motives for holding foreign exchange are applicable to each of the following?

a$.$ A tourist.

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b$.$ A bond trader.

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c$.$ A portfolio manager.

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d$.$ A manufacturer.

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$5.$ If U$.$S$.$ visitors to Mexico can buy more goods in Mexico than they can in the United States when they convert their dollars to pesos, is the dollar undervalued or overvalued? Explain.

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$6.$ In a fixed exchange rate system, how do countries address the problem of currency market pressures that threaten to lower or raise the value of their currency?

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$7.$ In the debate on fixed versus floating exchange rates, the strongest argument for a floating rate is that it frees macroeconomic policy from taking care of the exchange rate. This is also the weakest argument. Explain.

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$8.$ Brazil, Argentina, Paraguay, and Uruguay are members of MERCOSUR, a regional trade area that is trying to become a common market. What issues should they consider before they accept or reject a common currency?