A Sri Lankan MNC that is an importer has a $3,750,000 payable due in one yea Spot exchange rates 1-year Forward Rates Contract size $ 1.00 = Rs. 100 $ 1.00 = Rs. 120 Rs. 12,500,000 What is a strategy that will hedge this Sri Lankan firm's exchange rate risk? A. Go short in 36 rupee forward contracts.

a) Using the following information, determine each one of the theoretical Exchange Rates (E.R.) according to International Fisher Effect. b) Show how Money Market Arbitrage could be done assuming that the loan is 1,000 units of the currency of the country where the loan is contracted. Determine the profit in the currency in which the loan was contracted. ΜARKET ΜARKET E.R. E.R. COUNTRY CURRENCY INTEREST Dec-01 Dec-02 Dec-02 Mexico MXP 12 % 19.56 20.15 Turkey TRY (Lira) 6 % 5.9419 6.07673 Australia AUD 4 % 1.7759 1.81183 Jаpan JPY 8 % 105.866 113.978 United GBP 5 % 0.5991 0.617849 Kingdom (UK) South Korea KRW (Won) 9% 1,658.62 1,793.37 Canada CAD 5 % 1.3736 1.4942 U.S.A.. USD 3%

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A Japanese tourist rents a hotel room in London. The impact on BOP will be debit for Japan current account (-) and a credit for UK current account (+). True or False?