1. The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based upon your economic forecast, you are pretty confident that the spot exchange rate will be $1.52/€ in three months. Assume that you would like to buy or sell €100,000. What actions would you take to speculate in the forward market? How much will you make if your prediction is correct?

Take a short position in a forward. If you're right you will make $3,000.

Take a long position in a forward contract on euro. If you're right you will make $3,000.

Take a short position in a forward contract on euro. If you're right you will make $2,000.

Take a long position in a forward contract on euro. If you're right you will make $2,000.

Take a short position in a forward. If you're right you will make $3,000.

2. Sponsored ADRs are created by a bank at the request of foreign company that issued the underlying security. The depository fees are paid by the ADR investors.

True

False

3. The writer (seller) of a currency call option is obligated to sell the underlying currency at the exercise price to the buyer of the option if the option is exercised.

True

False