1. With reference to the recent quantitative easing exercise of larger developed countries, explain the difference between sterilized and non-sterilized government intervention, and state the type of currency systems that are best suited for each type.

2. A put option on British pounds () exists with a strike price of $1.60 and a premium of $0.03 per unit. Another put option on British pounds has a strike price of $1.62 and a premium of $0.04 per unit.

Required:

1. Describe how a bull spread can be constructed using these options and explain the difference between using put options versus call options to construct a bull spread.

2. Compute the payoff on this bull spread at $1.55 and $1.67.

3. If the British Pound spot rate is $1.60 at option expiration, compute the total profit or loss for a bear spread.

4. Construct a contingency graph for the above bear spread.