1) Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.

2) The Big Mac is considered a good candidate for the application of the law of one price and measurement of under or overvaluation of a currency. Develop an argument as to why this is a good idea.

3) Does foreign currency exchange hedging both reduce risk and increase expected value? Explain, and list several arguments in favor of currency risk management and several against.