There are three questions but Q1 and Q2 are linked.

Q1 and Q2 are linked. 1./ You work as a trader at a hedge fund, Day Capital. Your job is to trade currencies by speculating on whether they go up or down. You really feel that the Euro (EUR) is going to fall against the US dollar (USD) over the next one month. You see a bank quoting the following spot and forward exchange rates for the number of USD per EUR.

USD/EUR The bank's spot rate is 1.1220 (bid) - 1.1225 (ask).

The bank's one month forward rate is 1.1245 (bid) - 1.1250 (ask).

You believe that the EUR will fall against the USD over the next one month. Your boss says you can take a position with a notional value of 10 mio EUR to speculate based on your viewpoint/opinion/guess.

Q1: What most accurately descibes what you should do and can do.

(a) You sell 10 mio EUR in the spot market to the bank at 1.1220.

(b) You sell 10 mio EUR in the spot market to the bank at 1.1225.

(c) You sell 10 mio EUR in the forward market to the bank at 1.1245.

(d) You sell 10 mio EUR in the forward market to the bank at 1.1250.

(e) You buy 10 mio EUR in the spot market from the bank at 1.1220.

(f) You buy 10 mio EUR in the spot market from the bank at 1.1225.

(g) You buy 10 mio EUR in the forward market from the bank at 1.1245.

(h) You buy 10 mio EUR in the forward market from the bank at 1.1250.

(i) Only Oliver the Finance Pug is smart enough to answer this question. Give him the job at the hedge fund and rename the hedge fund Doggy Capital!

Q2: Assume you got the answer to Q1 correct and you implement that trading strategy. Suppose in one months time, your guess / opinion proves correct and the then spot exchange rate (number of USD per EUR) is 1.0696 (bid) - 1.0700 (ask).

How many USD profit have you made? Give your answer in USD to the nearest USD.

Q3: You work for a hedge fund and your job is to profit from possible arbitrages. You have the following information today from a large international bank active in the financial markets.

The spot exchange rate for the number of Malaysian Ringgit (MYR) per Singapore dollar (SGD) is 3.5900 - 3.5925 (bid-ask).

The Malaysian LIBOR interest-rate applicable from today to 6 months from now is 6.9% - 7.0% per annum (this is the bid-ask so, for example, 6.9% is the rate at which MYR can be deposited at the bank).

The Singaporean LIBOR interest-rate applicable from today to 6 months from now is 3.4% - 3.5% per annum. The six month forward exchange rate for the number of MYR per SGD is 3.6360 - 3.6420 (this is the bid-ask). Is there an arbitrage?

If you are allowed by your boss at the hedge fund to borrow 5 mio SGD, how much arbitrage profit (i.e., guaranteed risk-free profit) can you make?

Give your answer in SGD to the nearest SGD. Assume six months is exactly 0.5 years. If there is no arbitrage, enter zero.