1a) Suppose the futures price is below the price predicted by IRP. What steps would a speculator take to attempt to profit?

Go long in the futures contract.

Go short in the futures contract.

Go short in the spot market.

Go long in the spot market.

1b) The current spot rate is $1.600/. Jimmy Pools bought two 90- day European options contracts on 62,500 today as follows:

• A call option with a strike price of $1.640/ and a premium of 3%.
• A put option with a strike price of $1.560/ and a premium of 2%.

At what exchange rate will Jimmy break even? His call option will break even at _____ and his put option will break even at _____.

$1.688/, $1.528/

$1.608/, $1.608/

$1.608/, $1.592/

$1.648/ , $1.568/