1. If the spot rate for the Won is 800 won equals 1 US $, and the annual interest rate on fixed rate one-year deposits of won is 9% and for US$ is 3%, what is the one-year forward rate for one won in terms of dollars? Assuming the same interest rates, what isthe 8-month forward rate for one dollar in terms of won? Is this an indirect or a directrate? If the forward rate is an accurate predictor of exchange rates, in this case will thewon get stronger or weaker against the dollar? What does this indicate about inflation expectations in Korea compared to the US?

2. On January 3d, 2007, Daimler-Chrysler expects to ship 10,000 cars from its Hyundaiaffiliated plant in Korea to the US, which it will sell through its US dealers on 240-day terms at $10,000 each. So Daimler-Chrysler will receive payment from its dealers on August 30, 2007. Assuming that Daimler-Chrysler group needs to cover its expenses in Korea and thus wants to hedge its won exposure using a forward contract with a US bank in Korea, what is the minimum amount of won they should receive on August 30th, 2007 given the eight month forward rate for one US dollar in terms of won that you calculated in problem one? What is one other way they might they hedge their won/dollar exposure?