Scenario 1:

On October 17, 2014, here are some selected foreign exchange rates quoted by a major international bank:

EUR/USD

Spot 1.2774

Forwards 1 month 2.7 Futures Dec 14 1.2781

2 months 5.4 Mar 15 1.2790

3 months 8.2 Jun 15 1.2799

6 months 17.0 Sep 15 1.2814

1 year 44.9

USD/JPY

Spot 106.68

Forwards 1 month -25.1

2 months -48.1

3 months -108.3

6 months -206.5

1 year -505.1

USD/CAD

Spot 1.1231

Forwards 1 month 9.9

2 months 19.6

3 months 27.9

6 months 54.4

12 months 102.2

Answer the following questions based on the assumption that you are dealing with an international bank and these are the prices they have quoted you (show your calculation where appropriate):

1. You want to purchase EUR for delivery in six months.The rate you will pay is___________________________. (2 points)

2. You want to purchase JPY for delivery in three months.You rate you will pay is ______________________________. (2 points)

3. You want to sell CAD for delivery in one month. The rate you will sell for is ________________________________. (2 points)

4. You want to sell EUR for spot delivery. The rate you will sell at is ______________ (1 point)

5. You wish to purchase EUR using a futures contract for December 2014 delivery. The rate for the contract is _____________________. (1 point)

6. You wish to sell EUR using a futures contract for June 2015.The rate for the contract is _________________. (1 point)

7. Based on the value of the March 2015 futures contract, does the market expect the USD to appreciate or depreciate against the Euro in the spot market? ___________________ (2 points)

8. Based on the value of the September 2014 futures contract, does the market expect the USD to appreciate or depreciate against the EUR in the spot market? ___________________ (2 points)

9. If interest rates go up in Canada, do we expect the CAD to appreciate or depreciate against the USD in the spot market? _________________ (2 points)

10. If the government of Germany falls, do we expect the EUR to appreciate or depreciate against the USD in the spot market? ___________________(2 points)

11. If the Japanese government decides to ease its monetary policy, do we expect the JPY to appreciate or depreciate against the USD in the spot market? ______________________ (2 points)

12. If the German government fell, would we expect EUR futures contracts to become more volatile or less volatile? _______________________ (2 points)