That works in AmE, but not in BrE.If you want the students to do #1, #2 and #3, you should probably say "up through #3."
I think most BrE speakers would take the original sentence to mean "... do exercises 1, 2 and 3"
I'm honestly not sure about this.However, in actual practice, I think many of us use "up to x" in an inclusive sense (including x).
I'm honestly not sure about this.
I do know, however, that if you're assigning work to students and you want them to do #1, #2 and #3, you had better not leave any wiggle room.
Certainly that example is clear. (And of course I trust your judgment about these things.)I would bet that you actually agree with me. For example, it is very common for an automobile manufacturer to say that a vehicle "will seat up to five people," and I doubt that you would interpret that to mean that only four people can fit.