W Part a: One Mark for Each Question Suppose today's exchange rate is $1.55/. The sixmonth interest rates on dollars and euros are 6% and 3%, respectively. The sixmonth forward rate is $15478. A foreign exchange advisory service has predicted that the euro will appreciate to $15790 within six months. a. How would you use forward contracts to prot in the above situation? b. How would you use money market instruments (borrowing and lending) to prot? 0. Which alternatives (forward contracts or money market instruments) would you prefer? Why? Part I): One Mark for EaCh Question During the currency crisis of September 1992, the Bank of England borrowed DM 33 billion from the Bundesbank when a pound was worth DM 2.78, or $1.912. It sold these DM in the foreign exchange market for pounds in a futile attempt to prevent a devaluation of the pound. It repaid these DM at the postcrisis rate of DM 2.50:1. By then, the dollarpound exchange rate was $1.782:1. a. By what percentage had the pound sterling devalued in the interim against the Deutsche mark? Against the dollar? b, What was the Cost of intervention to the Bank of England in pounds? In dollars