1. Japan is expected to have inflation of 2% for the coming year, while the U.S. is expected to have deflation of 3%. The spot exchange rate is yen 95/$. A Toyota made in Japan costs yen 4.75 million. Purchasing power parity holds. Which of the following is true?

a) A car made in the US will cost $38,760 one year from today

b) If the exchange rate is 125 yen/$ one year from today, Japanese cars will have lost competitiveness.

c) A car made in Japan and sold in the US will cost $39,140 one year from today.

d) If the exchange rate is 120 yen/$ one year from today, US cars will have lost competitiveness.

2. When the Evans and Archer study is repeated with a security universe that includes international securities, the level of systematic risk:

a) there is no relation between systematic risk and the Evans and Archer study

b) increases; c)remains unchanged; d) decreases;