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2. (25 points)_Foreign Currency Speculation in General You are a currency speculator in NY. You are willing to risk money on your own opinion about
2. (25 points)_Foreign Currency Speculation in General You are a currency speculator in NY. You are willing to risk money on your own opinion about future currency prices. For you to establish your position on S2 after one year, assume that international fisher's effect (exact) holds for the Swiss franc (SF) to US dollar exchange rate for this operation. But the US interest rate is expected to remain at a relatively high rate of 5.0% per annum compared to the SF interest rate of 2.0% per annum. You may speculate in the (1) spot, (2) forward, and (3) option markets (buyer's position). Using the quotations below, show the rates of return (p.a.) for three possibilities of speculation for one year. You have $1,000,000 with which to speculate. Spot rate: 12 month forward rate: $0.5855/SF $0.5765/SF 12 month's option; Call, Put Strike price $0.5850/SF, Strike price $0.5850/SF, Premium Premium $0.005/SF $0.006/SF
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