Suppose you are a U.S. exporter expecting to receive a payment of NZD1,000 (New Zealand dollars) in 12 months. The annual interest rate on NZD deposits is 5 percent, and the annual interest rate on dollar deposits is 9 percent. If the present exchange rate is 0.50 per NZD and interest rate parity holds, how many dollars do you expect to receive at the maturity date of the export contract?
a. 2,000
b. 1,923
c. 1,000
d. 580
e. 520
Question 2
If the exchange rate between euros and dollars were 2 euros per dollar, when a French tourist buys a good valued at 80, its cost in euros would be:
a. 160 euros.
b. 80 euros.
c. 78 euros.
d. 40 euros.
In 2008, the U.S. economy suffered a gaping wound as several trillion dollars were ripped out of it.
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