You observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on 10,000.

		Exchange Rate		Interest Rate	APR
S0($/)		$1.45 = 1.00		i$	4%
F360($/)		$1.48 = 1.00		i	2%

Attempt 1/5 for 10 pts.

Part 1

To make arbitrage profit on one contract, you should

buy one contract on 10,000 now

sell one contract on 10,000 now

sell one contract on 10,000 in one year

buy one contract on 10,000 in one year

Submit

Attempt 1/10 for 10 pts.

Part 2

Detail a strategy to make arbitrage profit. How much profit (you must determine in $ or ) could you make on one contract at maturity?

Submit

Attempt 1/5 for 10 pts.

Part 3

If future price observed today is not $1.48/, but $1.46/, to make arbitrage profit on one contract, you should

sell one contract on 10,000 now

buy one contract on 10,000 in one year

buy one contract on 10,000 now

sell one contract on 10,000 in one year

Submit

Attempt 1/10 for 10 pts.

Part 4

If future price observed today is not $1.48/, but $1.46/, is your strategy any different? How much profit (you must determine in $ or ) could you make on one contract at maturity?