13) George purchased a Swiss franc American call option against the U.S. dollar with a strike price of $1.29/CHF and a maturity of January. Assume that it is November and the spot rate is $1.20/CHF and the option contract is for a total of CHF 130,000. Which of the following comments on Georges position is LEAST likely to be true? A. The option contains a right for George to purchase Swiss francs at a fixed rate on and prior to the expiration date. B. The option contains a right for George to sell U.S. dollars for Swiss francs at a fixed rate on and prior to the expiration date. C. The option is currently in the money. D. Given the current spot rate, the option is not going to be immediately exercised. E. George used the option to hedge the risk that the CHF strengthens in value relative to the dollar. Page 6 of 13 14) A speculator in London believes that JPY will appreciate sharply against the USD in the next month based on his analyses. Which of the following actions is MOST suitable according to his prediction? A. Buy a call option on USD (against JPY) B. Sell a call option on USD (against JPY) C. Buy a put option on USD (against JPY) D. Sell a put option on JPY (against USD) E. Take a long position on USD (against JPY) 15) A trader for Bank of America (BOA) saw the following prices from two different banks:

1-year USD deposits/loans:	2.100% 2.250% p.a.
1-year EUR deposits/loans:	1.150% 1.350% p.a.
Spot exchange rates:	USD 1.1250 / EUR USD 1.1270 / EUR
1-year forward exchange rates:	USD 1.1370 / EUR USD 1.1390 / EUR

The interest rates are quoted on a 360-day year. Is there an opportunity for covered interest arbitrage? If so, how would you implement covered interest arbitrage? A. Borrow fund in EUR, convert it to USD, invest in USD deposits, and convert back to EUR at the future exchange rate in 1-year. B. Borrow fund in USD, convert it to EUR, invest in EUR deposits, and convert back to USD at the future exchange rate in 1-year. C. Borrow fund in EUR, convert it to USD, invest in USD deposits, and convert back to EUR at the forward exchange rate in 1-year. D. Borrow fund in USD, convert it to EUR, invest in EUR deposits, and convert back to USD at the forward exchange rate in 1-year. E. No opportunity for covered interest arbitrage. 16) Inflation in the United States and United Kingdom is expected to be 4% and 9%, respectively, in the forthcoming year and 6% and 10%, respectively, in the year following. The current spot rate for the British pound (GBP) is $1.1540. Based on relative purchasing power parity, the expected spot value for the British pound (in terms of USD) in two years would be: A. USD 0.9980/GBP B. USD 1.1350/GBP C. USD 1.0540/GBP D. USD 1.1270GBP E. USD 1.0610/GBP Page 7 of 13 17) A trader purchased a Canadian futures contract at time t and the exchange rate has evolved as shown below. Initial margin is $3,000, and maintenance margin is $1,500. The contract size is CAD 100,000. If margin call is triggered, the trader will invest more fund to bring the marginal account balance to the initial margin. What would the traders margin account balance have been at the end of time t+4?

Day	Futures Price USD/CAD
t	0.9705
t + 1	0.9610
t + 2	0.9540
t + 3	0.9650
t + 4	0.9743

A. $5,030 B. $3,380 C. $2,880 D. $1,500 E. None of the above