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1. Assume the 6 month forward rate is \$1.15/euro, the spot rate is \$1.13/euro is the dollar selling at a Premium or a Discount in the forward market? Would you expect interest rates in the USA to be higher or lower than in Europe?2. Using the SDR weights from the slides calculate the value of the SDR assuming that the dollar is trading at 7 yuan/\$, \$1.20/euro, 105 yen/\$ and \$1.31/pound……3. You notice that the price of a Big Mac in Argentina is 40 pesos. Here in the USA the price is \$4.00. a.What is the purchasing power parity exchange rate between Argentina and the USA? b.If the actual exchange rate is 20 pesos to the \$ is the Argentine currency undervalued or overvalued.c.Assume that inflation in Argentina during the next year is expected to be 15% and that inflation in the USA is expected to be around zero. What would you expect to happen to the \$/peso exchange rate?

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