QUESTION TWO

a) Discuss Five factors that are likely to affect exchange rates. (5Marks)

b) Assume that the foreign currency (F) has been quoted against the as follows: Spot rate 1: F1166 1176 3 months forward rate 1: F1106 1800 Required: a) Determine the amount required in sterling pound to buy 1 million foreign currencies i) At the spot (3Marks) ii) In 3 months time under the forward exchange contract. (3Marks) b) Compute the amount a customer would get if he were to sell 1 million foreign currency i) At the spot rate (2Marks) ii) In 3 months time under forward exchange contract (2Marks)