Assume that the current spot rate is $1.0850/€ and the 3-month forward rate is $1.1100/€. Do all calculations for this problem for a three-month period, and you do not have to annualize. a. Does the foreign exchange market expect the Euro to appreciate or depreciate over the next three months? Explain why in an essay. You don’t need to calculate or report the forward discount of premium for this part. b. Is the Euro selling at a 3-month forward discount or forward premium? Calculate and report the three-month forward premium (%) or discount (%) for the Euro, quoted to two decimals places (e.g. 3.85%). c. Suppose you expect the Euro to appreciate by 2.75% over the next three months and you want to speculate. What will the spot rate be in 3 months if you are correct? Should you take a long or short position on the 3-month Euro? Explain why in an essay. d. Using Word preferably, draw a fully labeled forward contract payoff diagram like on p. 131 in the textbook, but showing your position only (not the other side). If you go short, show only the short position. If you go long, show only the long position. Using Word: Click Insert at the top, then select Shapes and then Lines. e. If you are correct and you take a speculative position with €1,000,000, did you make or lose money? How much? Calculate your total profit or loss in USD. f. Suppose the Euro appreciates by 1.35% over the next three months. What will the spot rate be in 3 months? Will you make or lose money? How much? Calculate your total profit or loss in USD. g. Suppose now you expect the Euro to appreciate by 1.50% over the next three months and you want to speculate. What will the spot rate be in 3 months if you are correct? Should you take a long or short position on the 3-month Euro? Explain why in an essay. h. Draw a fully labeled forward contract payoff diagram like on p. 131 (preferably using Word), but showing your position only (not the other side). If you go short, show only the short position. If you go long, show only the long position. i. If you are correct and you take a position with €2,000,000, did you make or lose money? How much? Calculate your total profit or loss in USD. j. Suppose the Euro actually appreciates by 2.85% over the next three months. What will the spot rate be in 3 months? Will you make or lose money? How much? Calculate your total profit or loss in USD.