Eco Questions statements, following, interest

btcapital

1) The U.S. interest rate is 4%, the Jordan interest rate is 7% and the $/JOD spot rate is 2.0010. What is the $/JOD forward rate that satisfies interest rate parity?
A) $0.5142 / JOD.
B) $1.9450 / JOD.
C) $1.0936 / JOD.
Question-2) The following chart indicates the production possibilities of food and drink per day in Country A and Country B.
Units of Output Per Day
Country A Country B
Food 4 8
Drink 6 7
Which of the following statements about the chart is most accurate?
A) Since B workers can produce more of food and drink than A workers, no gains from trade are possible.
B) Mutual gains could be realized from trade if A specialized in drink production and B specialized in the food production.
C) Mutual gains could be realized from trade if A specialized in food production and B specialized in drink production.
Question-3)
Assume an investor living in the United States can borrow in $ or in the Thai baht (THB). Given the following information, determine whether an arbitrage opportunity exists. If so, how much would the arbitrageur profit by borrowing $1,000,000 or the equivalent in baht? (Assume a period of one year and state the profit in domestic currency terms.)
Spot rate ($/baht) 0.02312
Forward rate ($/baht) 0.02200
Domestic (U.S.) interest rate (%) 4.50%
Foreign (Thailand) interest rate (%) 6.00%
A) Borrow baht. Arbitrage profits are $36,349.
B) Borrow $. Arbitrage profits are $36,349.
C) Borrow foreign. Arbitrage profits are $65,622.
I have some doubt in all 3 questions, please post your answers and explanation if possible…

Mechanic

Thanks CP
I see that I got 1 and 3 wrong because of incorrectly interpreting the exchange rates..
$/JOD spot rate is 2.0010, I assumed 1$ = 2.0010 JOD
however it should be 1JOD = 2.0010 USD, correct?
Similarly, ($/baht) 0.02312 , I assumed 1$ = .02312 baht
whereas it should be 1baht = .02312 dollar, correct?pls confirm
Such mistakes a month before the exam
For Ques2, I thought answer A was better, but answer is B, similar reasoning as yours….

strikethree

1. 2.001*1.04/1.07 = 1.9449 - 1.9450 $/JOD B
2. I am inclined to go with B.
Country B has the advantage for Foodwrt A. Though A does not have the advantage for Drink, if both companies produced - and traded - profits would be higher. That is my reasoning for B.
3. Based on IRP - Forward Baht = 0.02279 (0.02312*1.045/1.06)
Forward is Underpriced.
To take advantage - Buy Forward, (which means Short Sell Spot).
Borrow 1000000 $ convert to Baht at Spot - 43252595.16
Lend forward - * 1.06 = 45847750.87
Convert @ 0.02200 - 1008650.52 $
Need to return 1000000*1.045 = 1045000 $
Profit = 1008650.52 - 1045000 = 36349.48 - Ans B.