1. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.66, what will your net profit per unit be? 2. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Bank of Oklahoma has the capacity to borrow 20 million in Canadian dollars (C$) or 10 million in U.S. dollars ($). The bank believes that the C$ will appreciate over the next 20 days from $.35 to $.37. U.S. $ Lending Rate: 7.50% Borrowing Rate: 8.00% C$ Lending Rate: 7.20% Borrowing Rate: 7.60% Assuming the forecast is correct, what will be its U.S. $ profit from currency speculation over the 10 day period? 3. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). You expect to receive 10,000,000 Guinean francs 90 days from now. You hedge your position by selling the franc forward. The current spot rate of the franc is $.0090 and the forward rate is $.0096. In 90 days, you expect the spot rate to be $.0089. How many U.S. dollars will you receive for the 10,000,000 francs 60 days from now, assuming your forecast is correct? 4. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). The U.S. inflation rate is expected to be 3 percent over the next year, while the European inflation rate is expected to be 5 percent. The current spot rate of the euro is $1.03. Using purchasing power parity, what is the expected spot rate at the end of one year? 5. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Assume the following information: Current spot rate of Australian dollar = $.66 Forecasted spot rate of Australian dollar 1 year from now = $.59 1-year forward rate of Australian dollar = $.62 Annual interest rate for Australian dollar deposit = 8% Annual interest rate in the U.S. = 6% Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is _______%. 6. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.52. The following annual interest rates apply: Currency Lending Rate Borrowing Rate Dollars 7.10% 7.50% New Zealand dollar (NZ$) 6.90% 7.35% Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank?s forecast if correct, what will its dollar profit be from speculation over the five day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? 7. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.04 per unit. A pound option represents 31,500 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. What is the highest net profit possible for the speculator based on the information above, assuming the speculator acts rationally?

1. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.66, what will your net profit per unit be? 2. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Bank of Oklahoma has the capacity to borrow 20 million in Canadian dollars (C$) or 10 million in U.S. dollars ($). The bank believes that the C$ will appreciate over the next 20 days from $.35 to $.37. U.S. $ Lending Rate: 7.50% Borrowing Rate: 8.00% C$ Lending Rate: 7.20% Borrowing Rate: 7.60% Assuming the forecast is correct, what will be its U.S. $ profit from currency speculation over the 10 day period? 3. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS BELOW. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). You expect to receive 10,000,000 Guinean francs 90 days from now. You hedge your position by selling the franc forward. The current spot rate of the franc is $.0090 and the forward rate is $.0096. In 90 days, you expect the spot rate to be $.0089. How many U.S. dollars will you receive for the 10,000,000 francs 60 days from now, assuming your forecast is correct? 4. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). The U.S. inflation rate is expected to be 3 percent over the next year, while the European inflation rate is expected to be 5 percent. The current spot rate of the euro is $1.03. Using purchasing power parity, what is the expected spot rate at the end of one year? 5. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Assume the following information: Current spot rate of Australian dollar = Forecasted spot rate of Australian dollar 1 year from now = 1-year forward rate of Australian dollar = Annual interest rate for Australian dollar deposit = Annual interest rate in the U.S. = $.66 $.59 $.62 8% 6% Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is _______%. 6. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.52. The following annual interest rates apply: Currency Dollars New Zealand dollar (NZ$) Lending Rate 7.10% 6.90% Borrowing Rate 7.50% 7.35% Baylor Bank has the capacity to borrow either NZ$10 million or $5 million. If Baylor Bank's forecast if correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? 7. BE SURE TO SHOW AND LABEL ALL COMPUTATIONS. ALSO, BE SURE TO PROVIDE THE UNIT OF MEASURE OF THE ANSWER ($, EUROS, % ETC). Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50) for $.04 per unit. A pound option represents 31,500 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. What is the highest net profit possible for the speculator based on the information above, assuming the speculator acts rationally