(a) Suppose at 9.30am you call a foreign exchange dealer and ask for a quote on FJD/AUD exchange rate. The dealer responds by quoting 1.5500-1.5900. You decide to buy AUD1,000 at the quoted rate. At 3.30pm the same day, the dealer quotes 1.5545-1.5585. Calculate the profit or loss you make by selling AUD at 3.30pm? What will be your amount of profit or loss? [5 marks]

(b) The exchange rate between Fiji dollar and VUV (Ni-Vanuatu vatu) is (VUV/FJD) currently 52.400-53.500. You decide to take a speculative position on FJD, and this position is squared two months later when the exchange rate is (/) = 51.400 52.500.

(i) Is taking short position on FJD profitable?

(ii) Calculate the gain or loss by taking a short position on FJD1000, given the bid-offer rates of the two periods. [5 marks]