1)Assume that on November 1, the spot rate of the British pound was $1.58 and the price on a December futures contract was $1.59 on November 1. Assume that the pound depreciated during November so that by November 30 the spot price on the pound was trading at $1.51.

a.What do you think happened to the price of the December futures contract over the month of November (assuming the premium remained constant over the time period)? Why?

b.If you had known that this would occur, would you have purchased or sold a December futures contract in pounds on November 1? Explain.