1. An American company will receive 80 million euros in 6 months. The current spot rate is $1.15/euro and the 6 month forward rate is $1.4/euro. The company should sell a forward contract on 80 million euros to hedge its exchange rate risk.

True

False

2. if you believe the value of a foreign currency will depreciate relative to your domestic currency, you can speculate by

		selling a futures contract on that foreign currency.
		purchasing a forward contract on that foreign currency.
		purchasing a futures contract on that foreign currency.
		none of the above.

3. Use the following information to answer the next two questions.

Monday, a British company decided to use 4 futures contracts to speculate on the appreciation of the US dollar relative to the pound. Each contract has $600,000 attached. The futures price on Monday was 1.022/$. The initial margin and maintenance margin per contract is 10,000 and 6,500, respectively. Futures prices over the next two days (Tuesday and Wednesday) were 1.012 and 1.018, respectively.

Find the company's ending margin balance (in pounds) on Tuesday. Assume any deficit is eliminated to keep the account open and any excess margin remains within the account.

		64,000
		16,000
		40,000
		4,000

4. Find the company's ending margin balance (in pounds) on Wednesday. Assume any deficit is eliminated to keep the account open and any excess margin remains within the account.

		54,400
		49,600
		30,400
		40,000