Introduction to Finance

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12. 
Assume one U.S. dollar can currently purchase 1.316 Swiss 
francs. However, it has been predicted that one U.S. dollar soon will 
be exchangeable for 1.450 Swiss francs.
a. 
Calculate the percentage change in the U.S. dollar if the ex-
change rate change occurs.
b. 
Determine the dollar value of one Swiss franc at both of the 
above exchange rates.
c. 
Calculate the percentage change in the dollar value of one Swiss 
franc based on the preceding exchange rates.
13. 
Assume infl ation is expected to be 3 percent in the United States 
next year compared with 6 percent in Australia. If the U.S. dollar 
value of an Australian dollar is currently $0.500, what is the expected 
exchange rate one year from now based on purchasing power parity 
theory?
14. 
Assume infl ation is expected to be 8 percent in New Zealand next 
year compared with 4 percent in France. If the New Zealand dollar 
value of a euro is $0.400, what is the expected exchange rate one year 
from now based on purchasing power parity theory?
15. 
Assume the interest rate on a one-year U.S. government debt 
security is currently 9.5 percent compared with a 7.5 percent on 
a foreign country’s comparable maturity debt security. If the U.S. 
dollar value of the foreign country’s currency is $1.50, what is the 
expected exchange rate one year from now based on international 
Fisher eff ect theory?
16. 
Assume the interest rate in Australia on one-year government 
debt securities is 10 percent and the interest rate on Japanese one-
year debt is 5 percent. Assume the current Australian dollar value of 
the Japanese yen is $0.0200. Using international Fisher eff ect theory 
parity, estimate the expected value of the Japanese yen in terms of 
Australian dollars one year from now.