Question 1: (25Marks)

Table 1: Spot Exchange Rates

	Bid	Ask
HKD/USD	8.10	8.20
Yen/HKD	14.25	14.40
Euro/Pound	1.35	1.40
USD/Euro	1.20	1.25

Table 2: 12-Month Forward Exchange Rates

	Bid	Ask
HKD/USD	8.46	8.54
Yen/HKD	14.05	14.21
Euro/Pound	1.22	1.28
USD/Euro	1.20	1.24

Table 3: Nominal Interest Rates:

	Invest	Borrow
Hong Kong	5%	8%
US	3%	5%
Japan	1%	2%
UK	2%	4%

(a) Express the indirect HKD-Euro spot cross rates in European terms. (4)

(b) Express the direct Pound-HKD forward cross rates in Hong Kong terms. (4)

(c) Express the indirect Euro-Yen spot cross rates in European terms. (4)

(d) What is the cost in HKD for a Hong Kong importer who needs to pay USD2,000,000 to the U.S supplier immediately? (3)

(e) What are the Pound receipts for a British exporter who just received HKD1,000,000 from a Hong Kong client? (3)

(f) Freddy is a U.S investor who would like to take advantage of higher interest rates in Hong Kong. Freddy would like to hedge his position by entering into a currency forward contract. How much profit/loss in USD will Freddy make in 12-month time for an account started with USD100,000 today? (7)