Q3 (30%) You operate a Canadian firm and your firm will be receiving 1,000,000 from a European customer in 180 days. You would like to hedge against changes in CS/ FX rate. You observe the following market quotes. Note: To obtain the effective 180-day interest rates, you can simply divide the quoted (per annum) interest rates by two. For example, the effective 180-day financing rate in is 1.75% (= 3.5%/2). Spot and Forward FX Contracts Spot FX rate 180-day forward FX rate US$ 0.8001 -0.8023/C$ US$ 0.8056 -0.8088/CS US$ 1.1401 -1.1432/ US$ 1.1570 - 1.1592/ CS 180-day Interest Rates in CS and Lending (investment) Financing rate rate (% annum) (% annum) CS 4.2% 5.0% 2.9% 3.5% In answering this question, you might find it easier to first calculate the cross rates between CS and . (a) Based on the above quotations, is there any arbitrage profit opportunity from violating IRP? Show your calculations and explain the results. (b) What is the hedged CS receivable in 180 days using a forward market hedge? Give your answer to the nearest CS. (c) Outline the borrowing, lending, and spot FX exchange strategies in order to accomplish a money market hedge. What is the hedged CS receivable in 180 days using the money market hedge? Give your answer to the nearest C$. 2