Q$1$ and Q$2$ are linked. ANSWER QUESTION $2$ please

$($Q$1$ is worth $0\mathrm{.}3$ marks$)$

Q$1$: You work as a trader at a hedge fund, Bear Capital. Your job is to trade currencies by speculating on whether they go up or down.

You really feel that the US dollar $($USD$)$ is going to rise against the Canadian dollar $($CAD$)$ over the next one month.

You see a major international bank quoting the following spot and forward exchange rates for the number of CAD per USD.

EUR$/$GBP

The bank's spot rate is $1\mathrm{.}2425($bid$)-1\mathrm{.}2430($ask$).$

The bank's one month forward rate is $1\mathrm{.}2570($bid$)-1\mathrm{.}2575($ask$).$

You believe that the the US dollar $($USD$)$ is going to rise against the Canadian dollar $($CAD$)$ over the next one month.

Your boss says you can take a position with a notional value of $20$ mio USD to speculate based on your viewpoint $/$ opinion $/$ guess.

Q$1$: What most accurately describes what you should do and can do$.$

You sell $20$ mio USD in the forward market to the bank at $1\mathrm{.}2570.$

You sell $20$ mio USD in the forward market to the bank at $1\mathrm{.}2575.$

You sell $20$ mio USD in the spot market to the bank at $1\mathrm{.}2425.$

You sell $20$ mio USD in the spot market to the bank at $1\mathrm{.}2430.$

You buy $20$ mio USD in the forward market from the bank at $1\mathrm{.}2570.$

You buy $20$ mio USD in the forward market from the bank at $1\mathrm{.}2575.$

You buy $20$ mio USD in the spot market from the bank at $1\mathrm{.}2425.$

You buy $20$ mio USD in the spot market from the bank at $1\mathrm{.}2430.$

Only Oliver the Finance Pug is smart enough to answer this question. Give him the job at the hedge fund and rename the hedge fund Doggy Capital!

Q$2$ is worth $0\mathrm{.}5$ marks

Q$2$: Assume you got the answer to Q$1$ correct and you implement that trading strategy.

Suppose in one months time, the spot exchange rate $($number of CAD per USD$)$ turns out to be $1\mathrm{.}2550($bid$)-1\mathrm{.}2555($ask$)($assume that this spot exchange rate is being

quoted by a major international bank$).$

How many CAD profit have you made? Give your answer in CAD to the nearest CAD. Enter a negative number if it is actually a loss.

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