1. * Suppose you observe the spot USD/Yen at 109, the U. S. risk-free interest rate of 1.0% (continuously compounded), and the Japanese risk-free interest rate of -0.25% (continuously compounded). Identify the theoretical value of a 1 year foreign exchange futures contract (select the closest answer). Hint: S*(1+Fx)/(1+Lc); where Yen is Fx
   1. $109.826
   2. $110.376
   3. $109.00
   4. $108.191
   5. $107.651
2. What reason might be given for not wanting to hedge the future issuance of a liability if interest rates are unusually high? a. the margin cost will be expensive B- you are locking in a high rate and you believe interest rates will fall C- transaction costs are higher d. futures prices are lower

3. e. none of the above