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

exchange risk?

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

exchange risk.

*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?