1. Suppose that the current exchange rate is 1.00 = $1.60. The indirect quote, from the

U.S. perspective is? If a U.S. trader is receiving 100,000 for goods sold to a European

importer, how much in $ is the U.S. trader receiving at the indirect quote?

2. Consider a $/ bid-ask quote of $0.9237-$0.9242:

a.). At what dollar price does the bank pay for each ?

b). At what dollar price does the bank sell each ?

c). What is the banks profit if it initially holds $1,000,000, converts it into , and then back to $ at the bid and ask prices?

d). What are the corresponding /$ bid and ask prices?

3. Suppose you observe the following exchange rates: S($/) = 1.25, S($/) = 2. What is the implied euro-pound cross rate S(/)?

4. Suppose you observe the following spot exchange rates: $1 = 1.20,1 = $1.60, and 1 = 0.50. Starting with $1,000,000, how can you make money in $ and what is the $ profit?

5. The $/ spot exchange rate is $1.60/ and the 180-day forward exchange rate is $1.59/. Is $ trading at a forward premium or forward discount? What about ? The forward premium (discount) for $ and is?

6. The current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/. You are selling 1,000 forward for $. How much in $ are you receiving in three months? If the spot exchange rate is $1.60/ in three months, how much is the gain or loss from the forward hedge?