$($Ch$.5)$ Forwards and Futures Contracts. Describe and compare the similarities

and differences between futures contracts and forwards contracts in detail. $(15$ points$)$

$($Ch$.5)$ Forward Premium. It is now on September $25.$ You observe the EURUSD

spot exchange rate is $1\mathrm{.}1070$ and the $1-$year forward exchange rate is $1\mathrm{.}1250.$ a $.$ What is the

annualized forward premium? $(4$ points$)$

b$.$ Based on the no$-$arbitrage condition, what is the approximate one$-$year interest rate

differential between the U$.$S$.$ and the euro area? $(3$ points$)$

c$.$ Which currency has a higher one$-$year interest rate? Why? $(3$ points$)$

d$.$ If you observe that the one$-$year spot interest rate for the EUR is $4\%,$ what is the one$-$

year spot USD interest rate? $(2$ points$)$