1) Suppose that: Todays spot $/ rate is $1.3124/. The U.S. 1-year bond rate is 1.43%. The U.K. 1-year bond rate is .44%.

a. You have found a future (cash-settled) for a pound () denominated in dollars. What should be the contract price? You can round this to 2 decimal places.

b. In one year, the spot rate will take some value. For every possible future spot rate from 1 to 1.6 in increments of .01 (i.e. for 1, 1.01, 1.02, etc.), calculate the profit of one of these futures contracts from the long side and one of these futures contracts from the short side. Present this information graphically. [Im asking you to make the payoff graph where the x-axis ranges from 1 to 1.6].

c. What is the current /$ spot rate (according to the data above, not in real life)?

d. You have found a future (cash-settled) for a dollar denominated in pounds (). What should be the contract price?

e. In one year, the spot rate will take some value. For every possible future spot rate from .6/$ to 1/$ in increments of .01, calculate the profit of one of these futures contracts from the long side and one of these futures contracts from the short side. Present this information graphically.