Lakonishok Equipment has an investment opportunity in Europe. The project costs €13 million and is expected to produce cash flows of €2.6 million in Year 1, €3.2 million in Year 2, and €3.7 million in Year 3. The current spot exchange rate is $1.41/€; and the current risk-free rate in the United States is 2.0 percent, compared to that in Europe of 2.7 percent. The appropriate discount rate for the project is estimated to be 14 percent, the U. S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €8.6 million. Use the exact form of interest rate parity in calculating the expected spot rates.

(a) what do you think will happen if the price of non-gm crops continues to rise? why? (b) what will happen if the price of non-gm food drops? why?

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6. why the aggregate supply curve slopes upward in the short run in the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. several theories explain how this might happen. for example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. consider a soybean farmer who expects a price level of 100 in the coming year. if the actual price level turns out to be 90, soybean prices will , and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by the quantity of soybeans supplied. if other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to the natural level of output in the short run.