1. The three-month futures price for the British pound is $1.3384/. You expect the spot price three months from today to be $1.2720/ and your friend expects that spot to be $1.3860/. The British pound futures contract size is 62,500. a. If you and your friend are speculators would you buy the futures contracts or sell them. Explain your answer (as in how your position works to your benefit or against it). Repeat for your friend. b. How much profit would you make if you trade 68 contracts and your expectations come true? How much would your friend make if your (not his) expectations come true? c. If you were an MNC with A/R (accounts receivable) of 54 million you expect to receive in three months, would you buy or sell the pound futures? Explain your answer in your own words (as in how your position works to your benefit or against it). d. How many contracts should you buy or sell? How much would be your pound A/R worth in dollars? 2. The spot rate of the British pound today is 1.3380/. The three-month futures price for the British pound is $1.3190/. You expect the spot price three months from today to be $1.3670/. The British pound contract size is 62,500. a. If you decide to buy 82 British pound futures contracts, how much money do you need today as your initial investment (other than the margin you may need to post)? b. If you have available $1.4 million to speculate in the futures market as a buyer, how many contracts can you buy assuming no margin requirement? c. How much profit would you make if you buy 82 contracts and the spot price of the pound at futures expiration ended up at $1.2790/? d. If you were an MNC and you buy finished products from a provider in London for 36.75 million that are due to be paid by you in three months, would you buy or sell the pound futures if you decide to hedge your position? Explain your answer. e. How many contracts would you buy or sell? What would be the dollar value of your imports when your pound bill comes due? f. How much would be your profit/loss from the foreign exchange transaction if the spot rate three months from today ended up at $1.3620/