1. Foreign currency market participants in the futures market wishing to lock in a price at which they could _______ a foreign currency will ________ a futures contract.

   		a) buy; sell
   		b) sell; sell
   		c) sell; buy
   		d) All of the above

2. For the following problem, consider these debt strategies being considered by a corporate borrower. Each is intended to provide $1,000,000 in financing for a three-year period.

   Strategy #1: Borrow $1,000,000 for three years at a fixed rate of interest of 7%.

   Strategy #2: Borrow $1,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50%

   Strategy #3: Borrow $1,000,000 for one year at a fixed rate, and then renew the credit annually. The current one-year rate is 5%.

   Choosing strategy #2 will:

   		A) guarantee the lowest average annual rate over the next three years.
   		B) eliminate credit risk but retain repricing risk.
   		C) maintain the possibility of lower interest costs, but maximizes the combined credit and repricing risks.
   		D) preclude the possibility of sharing in lower interest rates over the three-year period.

3. Suppose Japanese yen money market annual rate is .60% and U.S. money market has an annual rate of 4.50%. The predictions on the spot rate in 6 months made by financial analysts X and Y are 116/$ and 114/$ respectively. If the spot rate today is 115/$, which prediction do you think is more reasonable, why?

   		A) Analysts X, because US dollar interest is higher than Japanese yen, so should appreciate against $.
   		B) Analysts X, because US dollar interest is higher than Japanese yen, so should depreciate against $.
   		C) Analysts Y, because US dollar interest is higher than Japanese yen, so should depreciate against $.
   		D) Analysts Y, because US dollar interest is higher than Japanese yen, so should appreciate against $.