10. (18 points) Christian, a student from University of Cambridge in UK, is planning a summer trip to visit some of his classmates in Berlin and St. Petersburg. The currencies used in these two cities are Euro (Symbol: EUR) and Ruble (Symbol: RUB), respectively. In his bank account, Christian has 2,000, and he will equally divide this amount between the two cities. He is planning the trip three months before the departure. His bank offers him the following bid-ask quotes: Spot USD/GBP: USD 1.5526/GBP- USD 1.5530/GBP Spot USD/EUR: USD 1.2970/EUR- USD 1.2974/EUR Spot RUB/USD: RUB 32.2310/USD- RUB 32.2450/USD 90-day Forward USD/GBP: USD 1.5510/GBP- USD 1.5519/GBP 90-day Forward USD/EUR: USD 1.2978/EUR- USD 1.2985/EUR 90-day Forward RUB/USD: RUB 32.7950/USD- RUB 32.8110/EUR 90-day pound deposit/loan interest rate: 0.96%/1.16% per annum (i.e. annualized) 90-day euro deposit/loan interest rate: 1.25%/1.45% per annum (i.e. annualized) 90-day ruble deposit/loan interest rate: 4.00%/6.50% per annum (i.e. annualized)

(a) What are the bid and ask 3-month forward prices for GBP with respect to EUR and RUB? Use only market 3-month forward rates as shown in the above table, and report them according to the quotation terms used by the market as in the table.

(b) What is the ask 3-month forward prices based on interest rate parity (IRP) for GBP with respect to EUR? Use the same quotation terms used by the market, and use the exact version of parity relationship.

(c) Christian wants to hedge against future foreign exchange rate risks. Please give him suggestions on TWO strategies to hedge the foreign currency risk. What is the maximum amount of each foreign currency he will have at this departure? Please list all the trading steps clearly (including the time, position and amount details, and prices). (Hint: One strategy is forward market hedging, and the other strategy is money market hedging.)