Question: #1 Assignment 3: Currency Derivatives Problem Set DUE DATE: MONDAY, OCTOBER 29, 2018 Names Instructions: Complete the following in your selected groups. Submit only one

#1 Assignment 3: Currency Derivatives Problem Set DUE DATE: MONDAY, OCTOBER 29,

Assignment 3: Currency Derivatives Problem Set DUE DATE: MONDAY, OCTOBER 29, 2018 Names Instructions: Complete the following in your selected groups. Submit only one LEGIBLE document per group and be sure to include the names of all group members 1. Suppose the current spot exchange rate is 1.1020 CAD/USD and the dollar is trading at a forward premurm of2.5% relative to the Canadian dollar. Based upon your economic forecast, you are pretty confident that the spot exchange rate will be 1.1120 CAD/USD in twelve months. What actions would you take to speculate in the forward market if you have $100,000 to speculate? 2. Suppose the current spot exchange rate is 1.3362 CAD/USD and the three-month forward rate is Fs(CAD/USD)-1.3150. You are a U.S. based investor and you are pretty confident in forecasting that the spot exchange rate will be 1.3245 CAD/USD in three months. Describe what speculative actions you would take in the forward market and calculate the expected profit if you have $500,000 to speculate? 3. Suppose you take a long position in 10 euro contracts at a price of $0.9102/ on the CME (Euro contrac consists of 250,000 euros). Prices over the next two days are $0.9056/ and S0.9020/. If your initial performance margin was $50,000, what is the value of your performance in day 3? 4. Do problem 2 again, assuming you have a short position in the 10 euro contracts

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