Question 5 a) Importers, exporters, investors and borrowers may all be participants in the FX markets. Explain why each of these parties would be involved in FX market transactions. [5 marks] Click or tap here to enter text. b) A German importer has entered into a contract under which it will require payment in GBP in one month. The company is concerned at its exposure to foreign exchange risk and decides to enter into a forward exchange contract with its bank. Given the following data, calculate the forward rate offered by the bank. (Both countries use a 365-day year; assume 30-day contract.) [5 marks] Hint: The quote is from the perspective of the dealer relative to the base currency. EUR/GBP (spot): 0.826067 One-month German interest rate: 4.75% p.a. One-month UK interest rate: 3.25% p.a.

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