Note: You have to show all necessary steps leading to your solutions. Only showing results without analysis/calculations will be punished by deducting points (at the discretion of instructor)

1. Suppose the quote on pounds is $1.9721-35/£. If you converted $10,000 to pounds and then back to dollars, how many dollars would you end up with?

2. Suppose the Brazilian Real is quoted at $0.9455-9510, and the Thai baht is quoted at $25.2513-3986. What is the direct quote for the Real in Bangkok?

3. Suppose a U.S company has to pay £5million after 3 months. To hedge this the importer buys a call options on the pounds, and the option premium is $0.0220/£, the strike price K = $1.50/£

(a) What is the cost incurred today?

(b) What is the ceiling that the importer has set on the price of the pounds?

(c) What is the actual amount that the importer will pay if the spot rate at the end of 3 months is $1.46/£? How will your answer change if the spot rate becomes $1.55/£

4. Redo the problem on our Chapter 7 slides "Making to Market" and "Full Example", by changing the original problem from "Short one CME yen futures contract ..." to "Long one CME yen futures contract ...". All other conditions/data are unchanged. (you need to establish a table similar to our slides)

5. Suppose a company wishes to lock in a 3-month rate to be placed in 6 months. It has been known LIBOR6 is 7.93% and LIBOR9 is 8.11%. What is the forward forward rate for a LIBOR3 deposit to be placed in 6 months?

6. Suppose Dow Chemical receives quotes of $0.008242-45 for the yen

(a) How many U.S. dollars will Dow Chemical receive from the sale of U50 million?

(b) What is the U.S. dollar cost to Dow Chemical of buying U1 billion?