a. Explain the difference between foreign currency options and futures and when either might be most appropriately used.

b. A forward market already existed, so why was it necessary to establish currency futures and currency options contracts?

c. If a foreigner purchases a U.S. government security, what happens to the supply of, and demand for, dollars? Illustrate with a demand and supply graph.

d. Describe the export and import situation when inflation in the Australia suddenly increase while in UK remained unchanged. Determine the demand for Pound Sterling and the supply of Pounds Sterling using a graph

e. Suppose that the forward ask price for March 20 on Euros is $0.9127 at the same time that the price of IMM euro futures for delivery on March 20 is $0.9145. How could an arbitrageur profit from this situation? What will be the arbitrageur's profit per futures contract (size is 125,000)?