• Would you characterize the U.S. dollar as a freely floating or dirty float system? What characteristics support your answer?
• What is direct central bank intervention in the currency markets and provide an example of this from the last 50 years.
• Use the following information to determine the probability distribution of per unit gains from selling Mexican peso futures.

? Spot rate of peso is $.12.

? Price of peso futures per unit is $.145 per unit.

? Your expectation of peso spot rate at maturity of futures contract is:

Possible Outcome for Future Spot Rate	Probability
0.10	08%
0.115	62%
0.15	30%

4) Use the following information to determine the probability distribution of net gains per unit from purchasing a call option on British pounds:

? Spot rate of the British pound = $1.40

? Premium on the British pound option = $.03 per unit

? Exercise price of British pound option = $1.43

? Your expectation of British pound spot rate prior to the expiration of option is:

Possible Outcome for Future Spot Rate	Probability
$1.42	20%
$1.47	60%
$1.50	20%

5) Assume the following information:

? Mexican one-year interest rate = 15%

? U.S. one-year interest rate = 11%

If interest rate parity exists, what would be the forward premium or discount on the Mexican peso?s forward rate? Would covered interest arbitrage be more profitable to U.S. investors than investing at home? Explain.

• Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds).
• The Federal Reserve has increasingly favored the use of Repurchase Agreements as part of its open market operations. Briefly describe these and why the Fed or banks prefer to use them.
• Banks engage in proprietary trading as part of their operations. Briefly speculate on why they now must adhere to much more stringent trading activity as a result of the 2008-09 financial crises.
• Briefly describe two off-balance sheet activities and why banks favor the use of these.

If you were the CEO of a US bank, would you consider establishing a foreign branch? What might be a concern related to doing so?

1) Would you characterize the U.S. dollar as a freely floating or dirty float system? What characteristics support your answer? 2) What is direct central bank intervention in the currency markets and provide an example of this from the last 50 years. 3) Use the following information to determine the probability distribution of per unit gains from selling Mexican peso futures. Spot rate of peso is $.12. Price of peso futures per unit is $.145 per unit. Your expectation of peso spot rate at maturity of futures contract is: Possible Outcome for Future Probability Spot Rate 0.10 0.115 0.15 08% 62% 30% 4) Use the following information to determine the probability distribution of net gains per unit from purchasing a call option on British pounds: Spot rate of the British pound = $1.40 Premium on the British pound option = $.03 per unit Exercise price of British pound option = $1.43 Your expectation of British pound spot rate prior to the expiration of option is: Possible Outcome for Future Probability Spot Rate $1.42 20% $1.47 $1.50 60% 20% 5) Assume the following information: Mexican one-year interest rate = 15% U.S. one-year interest rate = 11% If interest rate parity exists, what would be the forward premium or discount on the Mexican peso's forward rate? Would covered interest arbitrage be more profitable to U.S. investors than investing at home? Explain. 1) Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds). 2) The Federal Reserve has increasingly favored the use of Repurchase Agreements as part of its open market operations. Briefly describe these and why the Fed or banks prefer to use them. 3) Banks engage in proprietary trading as part of their operations. Briefly speculate on why they now must adhere to much more stringent trading activity as a result of the 2008-09 financial crises. 4) Briefly describe two off-balance sheet activities and why banks favor the use of these. If you were the CEO of a US bank, would you consider establishing a foreign branch? What might be a concern related to doing so