Date price research death in yo CPI US CPI UK Inflation 2018:1 108.6 106.2 2018:11 111.0 108.2 2018:III 112.3 109.3 2018:IV 109.1 108.4 2019:1 108.6 106.1 2019:11 109.7 106.9 Inflation US (7) UK PPP Actual Forecast Error Extimate (ST) (x) (S.) 1.9754 1.9914 1.7705 1.4378 1.4381 a. Determine the equilibrium spot rates from 2018:11 to 2019:11 using PPP b. Determine the forecast errors from 2018:11 to 2019:1 of the future spot rate based on PPP. Compute the Mean squared error (MSE) of these forecasts. c. You receive forward rate information for the 90 day forwards during the period 2018:II to 2019:1, they are: 1.9992 (2018:II); 1.8123 (2018:III); 1.5298 (2018:IV) and 1.4401 (2019:1). Use these rates to compute the MSE of the three-month forward as a forecast of the spot rate. d. Based on the MSEs you calculated in b. and c. what recommendation would you give your boss: to use the PPP based forecast of the future spot rate or rely on the forward to make predictions on future spot rates? Explain your reasons. 9.(5 pts.) The following chart shows the price of the Canadian dollar (blue line) and two moving averages: a 30-day average (the red line) and a 100-day average (the green line). Use the moving- average crossover rule to identify times in which a trader could have benefitted from taking a short or a long position in the futures market between March 2017 and March 2020. Explain when you should have taken a long position in CAD futures, when you should have taken a short position in CAD futures and why. FIN450-Spring 2020 Exam #2 - Take Home Portion pg.2 Option 1.28 1.26 1.24 1.22 1.2 1.38 1.36 1.34 1.32 1.3 10/3/2017 11/3/2017 12/3/2017 1/3/2018 2/3/2018 3/3/2018 4/3/2018 5/3/2018 6/3/2018 7/3/2018 Price of the Canadian Dollar 8/3/2018 9/3/2018 10/3/2018 11/3/2018 12/3/2018 1/3/2019 2/3/2019 3/3/2019 - USD/CAD Close -100-day MA Mha 4/3/2019 5/3/2019 6/3/2019 7/3/2019 8/3/2019 9/3/2019 10/3/2019 -30-day MA 11/3/2019 12/3/2019 1/3/2020 2/3/2020 3/3/2020 10. (5 pts.) Consider a call option and a put option on the euro with strike price on both options $0.95/EUR. The call is sold at a premium of $0.0090/EUR, while the put is sold at a premium of $0.0150/EUR. Both options are with expiration date three months from now and the contract size spot at $1.00/EU. is EUR 100,000. Calculate net profit for each of the options at maturity when the euro is traded 11. (5 pts.) Suppose you expect that the Canadian dollar will depreciate versus the US$ in the coming following options are available to you: 90 days. The current spot rate is $0.69/CAD. You expect depreciation to $0.60/CAD. The Strike Price