A contract is an agreement to buy or sell an asset. Discuss the difference between a spot and a forward contract on a currency. (10 points) 2 Suppose a quote for British pound ($/) in New York is $1.2550-60. a. What is the implied quote for dollar (/$) in New York? b. How much will it cost to buy 300,000? c. How much will you get if sell 300,000? (8 points) 3. If the reported exchange rate between the U.S. dollar and the Canadian dollar on a given day is C$1.2420/$ and it is changed to C$1.2380/$ after 10 days, what is the (annualized) percentage appreciation of $ against C$ and the (annualized) percentage depreciation of C$ against $ over the period. (8 points) 4. The following are New York closing rates for C$/US$ and SFr/US$: C$/$ = 1.2450; SFr/$ = 0.9550 (a) Calculate the cross rate for C$ in terms of SFr (SFr/C$). (b) If the C$ was trading at SF0.7550 in Zurich on the same day, was there an arbitrage opportunity? If so, show how arbitrageurs with C$ could have profited from this opportunity and calculate the arbitrage profits in C$ and in percent. (15 points) 5. (a) If you see a three-month swap quote for dollar at a banks website as C$1.3450-70 30-20, what is the outright three-month forward rate for $? (b) Calculate the annualized percentage premium/discount on $ using the mid-point of the spot and the outright forward rate. (C) What will be the annualized premium/discount on C$? (12 points) 6 If interest rates in the U.S. and Canada are 5% and 6% respectively and the spot rate for dollar is C$1.4850, what is the 180-day equilibrium forward rate for US$? What is the corresponding 180-day equilibrium forward rate for C$? (10 points) 7 The treasurer of a Canadian company has C$1,000,000 to invest for 90 days. A 180-day U.S. commercial paper offers a yield of 5.00 percent. The present exchange rate of C$ is $0.8280. If the Canadian company decided to invest in U.S. commercial paper, what is the expected (annual) yield if the expected exchange rate of CS at the end of 90 days is $0.8490? (You will find an illustrative example for this type of questions in the course content folder) (12 points)