4)

John works at a financial institution in the United States and his job profile makes him interact with the various components of the nations financial system. He is of the view that a nations citizenry is better-off when everyone is self-sufficient and no one needs to borrow from or lend to someone to succeed in their respective ventures. In fact, he comes from a family background that considers borrowing to be an embarassment. To be debt-free is what he sees as an important pillar of financial success. His friend and co-worker Mary does not fully agree with him. Though she sees self-sufficiency as desirable, she wonders whether it is possible to achieve such a state or even whether it is desirable to be economically selfsufficient. Her spiritual teacher tells her that everything in the cosmos is interconnected and interdependant. While she contemplates on the puzzle, she absent-mindedly opens a package that she has just received in the mail. She usually uses her office address for shipping as she has found things often getting stolen when delivered at her home address while she is at work. The package is from one of her favourite shopping portal. On one of her online visits to the store a couple of months ago, she was attracted by the colour, shape, size and shine of a jewellery item and decide to buy it. After saving a part of her salary, she had happily clicked the Buy now button last week. And now that the item is here, she forgets about national economic welfare and her disagreement with John. Instead, she focuses on prying the package open and to lay her hands on the contents inside. As she has her first look at the jewellery, she feels her heart dropping from the ribcage. The actual physical size of the item she ordered is much smaller than how it appeared on the website and it does not even seem to be as shiny and smooth as it was in the online picture. She feels bitter and deceived. More so, because the seller does not have a good return policy and she will have to bear the shipping and re-stocking fees if she decides to send the item back. She decides to lodge a complaint with the shopping portal anyway and ask for a refund. Two desks away, John is complaining about how inefficient and greedy governments are. Why are they such beggars? They keep asking people for money all the time. Is it not that they are supposed to offer us facilities and take care of us. Instead individuals, households and business houses, all of us, have to keep feeding them all the time. He is expressing his alarm in an agitated voice as he rambles on. They come for you in all forms. They will be strict and make you pay a part of your hard-earned money as taxes. And as if that is not enough, they want to take your money and give you back some T-Bills. What are they after all? Just pieces of paper which do not even offer any return while the government gets flush with money and makes merry. He has had a sleepless night because apparently most insect repellents do not agree with his skin (or maybe he does not agree with them. Who knows?) and the mosquitoes find him inviting. With a foggy head he is trying to deal with a T-Bill issue from the government in a grumpy mood. The Treasury seeks to raise $9 million from a T-Bill issue. $2 million worth of T-Bills are allocated for non-competitive bidders. The following bids from competitive bidders are received: Bidder Amount ($) Bid per $1 of T-Bill 1. 5 million 0.945 2. 3 million 0.9493 3. 2.5 million 0.9515 4. 2 million 0.9504 5. 2 million 0.95 6. 1 million 0.949 7. 1 million 0.9521 John is struggling for time and he has to compute who will get how many dollars worth of T-Bills and at what price? He will have to provide the figures to his boss Nancy Williams in about 15 minutes from now. Mary, meanwhile has taken a few deep breaths on the terrace in an attempt to overcome her shopping fiasco. As she come back to her desk, she sees her computer terminal flashing with the following FOREX quotes: 1.1837 EUR/USD

0.7231 EUR/GBP

1.6388 GBP/USD As usual, she is required to check whether she can use them to earn some profit for her institution. She calls Nancy Williams, the department head, to ask how much funds can be allocated to participate in the FOREX market today. She gets an approval for 10,000 Euros and proceeds to examine the above FOREX quotes for a potential profit-making opportunity.

Question 4 (5 marks) Will Mary be able to earn some profit for her institution by playing the FOREX market by using the quotes she saw on her screen when she returned from the terrace after the shopping disaster? If so, compute the profit. What is such type of profit called? (5 marks)