One-year interest rates are currently 3.30% in the United States and 2.60% in "Euroland." The current spot rate between the euro and dollar is $1.3225/?. What is the expected spot rate in one year if the international Fisher effect holds?

a. Spot rate*(1+Interst rate in Euroland)/(1+interest rate in US) = 1.3225*(1+2.6%)/(1+3.3%)
=$1.3314/?

Andrea Cujoli is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea's expectations are correct, then she could profit in the forward market by __________ and then __________.

Since she believes that the 6 month forward rate for Yen is lower (she can buy more Yen per dollar) than the spot rate at the end of 6 months, she will gain from the price difference. So she should buy Yen in the Forward market. On the date (6 months from now) if her prediction is true, she will settle the forward contract by paying $1 and getting 128.53 Yen. She can sell these yen in the market at $128.53/128, thus receiving a net gain.

A U.S. firm sells merchandise to a British company for £100,000 at a current exchange rate of $1.43/£. If the exchange rate changes to $1.45/£ the U.S. firm will realize a __________ of __________.
The US firm is an exporter so the firm will gain if US currency depreciates and will loose if the US currency appreciates. In this case the US currency is depreciating as depreciating (you can buy more dollars per euro), the the US firm will gain and the gain would be 100,000*(1.45-1.43)=$2000