Sebastian is planning to invest in derivatives. Which of the following is least likely to be an advantage that he should consider?

Select one:

a. Greater opportunities to go short compared to the spot market.

b. Effective risk management.

c. Similar payoffs to those of underlying.

Suppose that the 2-year interest rates in Switzerland and the United States are 3% and 5% respectively (with continuous compounding), and the spot exchange rate is 1.02 CHF per USD. What is the 2 year forward exchange rate?

Select one:

a. 1.0204

b. 0.9800

c. 0.94195

d. 1.0616

Suppose that the 2-year interest rates in Switzerland and the United States are 3% and 6% respectively (with continuous compounding), and the spot exchange rate is 0.98 USD per CHF. and Suppose that the 2 year forward exchange rate is 1.0309 CHF per USD, what should an arbitrageur do to make profit from this situation? And how much profit he will make? You have 1000 to use in either currency.

Select one:

a. Short FWD to buy USD, profit CHF33.82

b. Short FWD to buy CHF, profit CHF74.93

c. Long FWD to buy CHF, profit $74.93

d. Long FWD to buy USD, profit $33.82