1. In pricing forward contracts, would an increase in risk free rate increase or decrease forward price relative to spot price? Assume that everything else keeps unchanged.

A. increase

B. decrease

C. no change

D. undetermined

2. Suppose a U.S. company knows that it will have to receive fifty million Japanese Yen in five months for goods it has sold to a Japanese firm. How could the U.S. company hedge the currency risks using futures on Yen?

A. Long futures on Yen

B. Short futures on Yen

C. none of these

3. A company wants to use a forward contract or a futures contract to hedge a future sale of gold. Is the company better off using a futures contract or a forward contract when the price of gold first falls quickly and then increases back to its initial value during the life of the contract?

A. There is not enough information to decide.

B. There is no difference when to use forward or futures.

C. Futures contract

D. Forward contract