1. Linden Co. has 1,000,000 euros as payables due in 90 days, and is certain that euro is going to depreciate substantially over time. Assuming the firm is correct, the ideal strategy is to:

2. For the United States, trade balance that is negative by capital account surpluses.

3. Suppose the U.S. has the following net amounts appearing on their balance of payments statement:

Goods                    ? 40

Services 80

Factor Income 35

Unilateral transfer       ? 20

The balance of trade is $___________

The current account balance is $__________

The trade balance is $____________

4. If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.

a. selling; selling b. selling; purchasing c. purchasing; purchasing d. purchasing; selling

5. In the U.S., the typical currency futures contract is based on a currency value in terms of:

a. euros. b. U.S. dollars. c. British pounds. d. Canadian dollars.

6. You purchase a call option on pounds for a premium of $.03 per unit, with an exercise price of $1.64; the option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.65, your net profit per unit is:

a. −$.03. b. −$.02. c. −$.01. d. $.02. e. none of the above

7. Assume the following information:

You have $1,000,000 to invest:

Current spot rate of pound = $1.30

90-day forward rate of pound = $1.28

3-month deposit rate in U.S. = 3%

3-month deposit rate in Great Britain = 4%

If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?