6. Calculate the forward discount or premium for the
following spot and three-month forward rates:
(a) SR = SF2/¤1 and SF2.02/¤1 where SF is
the Swiss franc and ¤ is the euro
(b) SR = ¥200/$1 and FR = ¥190/$1
7. Assume that SR = $2/£1 and the three-month FR
= $1.96/£1. How can an importer who will have
to pay £10,000 in three months hedge the foreign
8. For the given in Problem 7, indicate how an
exporter who expects to receive a payment of
£1 million in three months hedges the foreign
*9. Assume that the three month FR = $2.00/£1 and
a speculator believes that the spot rate in three
months will be SR = $2.05/£1. How can a person
speculate in the forward market? How much will
the speculator earn if he or she is correct?
10. If the speculator of Problem 9 believes that the
spot rate in three months will be SR = $1.95/£1,
how can he or she speculate in the forward market?
How much will the speculator earn if he or
she is correct? What will the result be if in three
months SR = $2.05/£1 instead?
*11. If the positive interest rate differential in favor of
a foreign monetary center is 4 percent per year
and the foreign currency is at a forward discount
of 2 percent per year, roughly how much would an
interest arbitrageur earn from the purchase of foreign
three-month treasury bills if he or she covered
the foreign exchange risk?
12. For the given of Problem 11, indicate:
(a) How much would an interest arbitrageur earn
if the foreign currency were at a forward premium
of 1 percent per year?
(b) What would happen if the foreign currency
were at a forward discount of 6 percent per year?