1. There is a =25% probability that the spot exchange rate will be =0.90 / . And a =75% probability that it will be =1.00 /.

(a) Find the expected spot exchange rate.

(b) A trader is offering you to buy 50 Australian from you in the future at the forward rate of =0.91 /. Find the risk premium.

(c) In this scenario, describe in one sentence what a swap contract would look like.

1.2 There is a =25% probability that the spot exchange rate will be =0.90 / . And a =75% probability that it will be =1.00 /.

You are holding a put option with a forward rate of =0.92 . Draw the strategy tree for this uncertainty and the option. Cross out dominated strategies.