1) The spot rate for the euro in New York is $0.8473

(a) What should the spot price for the USD be in Frankfurt?

(b) Should the Dollar be quoted at euro1.20/$ in Frankfurt, how would the market react?

2) When the euro spot rate was quoted at $0.8473 in New York, the US market was quoting sterling at $1.32/pound.

(a) What should the price of the sterling pound be in New York?

(b) If sterling pound was quoted at euro 1.1189/pound in Frankfurt, what profit opportunities would exist?

3) The spot rate for the French franc is $0.1600/FF and the three months forward rate is $0.1605/FF. Your company is prepared to speculate that the French franc will have $ 0.1750/FF by the end of three-months. Assuming that your company has agreed to put $1million at risk on the deal

(a) Are the quotations given in direct or indirect Paris quotations?

(b) How would the speculation be undertaken using the spot market only?

(c) How would the speculation be undertaken using the forward markets?