Question 2 (18 marks)

Based on the rates given below, determine which currency strengthened and which currency weakened, whether the currency closed up or down and your profit or loss based on the position you took at the open.

Example: Sterling opens at 1.2890 and closes at 1.2750 and purchase of 1 million GBP at the open. The sterling closed down for the day, therefore the sterling weakened and the (US) dollar strengthened. The profit and loss of the open position will be 140 pips loss 1,000,000 * (1.2750-1.2890) = - 14,000 USD (currency and amount) Base currency gain/loss is 1,000,000 *((1.2750/1.2890) - 1) = - 10,861.13 GBP

a. (9 marks) Dollar-yen opens at 110.25 and closes at 113.50 and sold 1 million USD against JPY at the open.

b. (9 marks) EUR opens at 1.1960 and closes at 1.1750, and purchase of 500,000 euro at the open.