1. Ceteris paribus, an increase in the British (foreign)

1. Ceteris paribus, an increase in the British (foreign) interest
rates will make British pound investments _____ to investors, causing _____ in demand for pounds on the Forex.

-less attractive; no change
-more attractive; no change
-less attractive; an increase
-more attractive; an increase
-more attractive; a decrease
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-2. Suppose that the current exchange rate between the U.S. dollar and the British pound is 1.464$/£. Now further assume that the expected inflation rate in the U.S. for the next year is 2.5% while the expected inflation rate in England is 3%. Considering relative purchasing power parity (PPP), what 1-year forward rate would we expect in terms of $£? To solve this problem, use the equation from the Suranovic textbook equation for relative PPP in section 30-4. Show your work to receive full credit for this problem.
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-3. Suppose an importer, who expects to receive his shipment of raw materials worth €15,000 in three months, enters into a forward contract where E€/$ is 0.80. If at the time of delivery of the raw materials E€/$ = 0.83, how much does the trader benefit/lose by entering into the forward contract?
-He/she loses by $677.71
-He/she gains by $677.71
-He/she gains by $450
-He/she loses by $450
-He/she loses by $227.71

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