QUESTION ONE a) A Japanese Manufacturer has an accounts receivable of USD1 million due in 90 days The spot and forward exchange rates are JPY/USD110 and 109,8, respectively. The simple interest rate for a three-month deposit is 2% pa. in Japan and 3% pa., in the U.S.A i) If the manufacturer sells the USD1 million forward for 90 days, how many JPY will (3 marks) she receive in 90 days. i) How could she replicate a forward sale in the spot and money markets? Show 6 marks) workings A bank quotes the following rates: CHF/USD 2.5110-2.5140 and PY/USD 245 246. What is the minimum JPY/CHF bid and the maximum ask cross rate that the bank would quote. b) (6 marks) c) Abitibi Bank quotes JPY/DEM 63.95 64.72 and Bathurst Bank quotes DEMUPY 0.0152-0.0154 i) Are these quotes identical? Show workings. i) If not, is there a possibility for least cost dealing or arbitrage? Explain. (3 marks) ii) If there is an arbitrage opportunity how would you profit from it? (4 marks)