37 Using your institutions databases, test one of the following equations:

Kingdom and 2% in Canada. A call option with a three-month expiration date on Canadian dollars is available for a premium of £0.02 and a strike price of £0.44. The spot rate of the Canadian dollar is £0.45.
Assume that you believe in purchasing power parity.
a Determine the pound amount of your profit or loss from buying a call option contract specifying C$100 000.
b Determine the pound amount of your profit or loss from buying a futures contract specifying C$100 000.

choose:
l Two countries (one exchange rate)
l A time period, e.g. 1990 to 2010 l A frequency (annually, quarterly, monthly, daily).
Review your results, then perform a secondary test in response to your findings. The secondary test may, for example:
l Alter the lag structure of the explanatory variables, e.g. quarter 4 exchange rate change regressed against quarter 1 inflation differential.
l Alter the time periods l Alter the frequency.
Compare your secondary test with the first test to see if there has been an improvement.

Transcribed Image Text:

or er ao+a (in-ir)+& er ao+a+ (n-1)+&