ANSWER 3 AND 4 . Two countries, Poland and the US produce just one product: mutt

Question

ANSWER 3 AND 4 . Two countries, Poland and the US produce just one product: mutton meat. Suppose that the price of mutton in the US is $2.80 per pound, and in Poland it is Euro 3.70 per pound. According to PPP theory, what should the spot exchange rate be for? (Gest your answer to se if it makes sense) b) Ans.1S-Euro Show why: c) Suppose the price of mutton is expected to rise to $3.10 in the US, and to Euro 4.60 in Poland. What should be the one year forward rate be for the two currencies? Ans. 1$- Euro Show why: 4. A U.S. firm that manufactures automated mailboxes has found a client in Argentina. The buyer in Argentina cannot pay cash and the credit market there makes it impossible to secure financing. Howeve the buyer knows that he/she can sell the shipped mailboxes swiftly in an all in one profitable transaction. List an option and the process/procedures that the exporter could take in order to make this transaction happen. Your selection should reduce Risk to the exporter of the mailboxes. (Countertrade and/or time draft are not an option)

Explanation / Answer

Question 3). b). Solution :-

1 £ = $ 2.80

1 £ = € 3.70

1 $ = € 0.76 (2.80 / 3.70 = 0.76)

Conclusion :- One US Dollar = 0.76 Euro.   

Question 3). c). Solution :-  

1 £ = $ 3.10

1 £ = € 4.60

1 $ = € 0.67 (3.10 / 4.60 = 0.67)

Conclusion :- One US Dollar = 0.67 Euro. (One year forward rate).

Note :- $ denotes US dollar, £ denotes to pound and € denotes to euro.

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