Assignment 1

1. in Delhi, a haircut cost 135 rupees (INR). The same haircut cost 15 Singapore dollar
(SGD) in Singarpore. At an exchange rate of 50 INR per SGD, what is the price of an
Indian haircut in terms of a Singapore haircut? Keeping all else equal, how does this
relative price change if the INR depreciates to 55 INR per SGD? Compared to the initial
situation, does a singapore haircut become more or less expensive in relation to an
Indian haircut?

2. calculate the euro rates of return on the following assets:

a. a painting whose price rises from €200,000 to €260,000 in a year.

b. a diamond whose price rise from €20,000 to €20,500 between 2014 and 2015.

c. a £10,000 deposit in a London bank in a year when the interest rate on pounds
is 4% and the €/£ exchange rate move from €1.36 /£ to €1.20 /£.

3. soppuse the Mexican peso (MXN) interest rate and the Indian rupee (INR) interest
rate are the same, 5% each year. What is the relation between the current equilibrium
MXN/INR exchange rate and its expected level? Suppose the expected future
MXN/INR exchange rate, 3.40 INR per Mexican peso, remains constant as Indian’s
interest rate rise to 10% per year. If the Mexican interest rate also remains costant,
which is the new equilibrium MXN/INR exchange rate?

4. Petroleum is sold in a world market and tends to be prices in U.S dollars. The
Phosphate Group of Morocco must import petroleum to produce fertilizer and other
chemicals. How are its profits affect when the Dirhan (Moroccan currency) depreciates
against the dollar?

5. For the following 15 cases, compare the dollar rates of return on dollar and euro
deposits.