# Calculate the forward discount or premium for the following spot and three-month forward rates: (a) SR = SF2/1 and SF2.

6. Calculate the forward discount or premium for the

following spot and three-month forward rates:

(a) SR = SF2/¤1 and SF2.02/¤1 where SF is

the Swiss franc and ¤ is the euro

(b) SR = ¥200/\$1 and FR = ¥190/\$1

7. Assume that SR = \$2/£1 and the three-month FR

= \$1.96/£1. How can an importer who will have

to pay £10,000 in three months hedge the foreign

exchange risk?

8. For the given in Problem 7, indicate how an

exporter who expects to receive a payment of

£1 million in three months hedges the foreign

exchange risk.

*9. Assume that the three month FR = \$2.00/£1 and

a speculator believes that the spot rate in three

months will be SR = \$2.05/£1. How can a person

speculate in the forward market? How much will

the speculator earn if he or she is correct?

10. If the speculator of Problem 9 believes that the

spot rate in three months will be SR = \$1.95/£1,

how can he or she speculate in the forward market?

How much will the speculator earn if he or

she is correct? What will the result be if in three

*11. If the positive interest rate differential in favor of

a foreign monetary center is 4 percent per year

and the foreign currency is at a forward discount

of 2 percent per year, roughly how much would an

interest arbitrageur earn from the purchase of foreign

three-month treasury bills if he or she covered

the foreign exchange risk?

12. For the given of Problem 11, indicate:

(a) How much would an interest arbitrageur earn

if the foreign currency were at a forward premium

of 1 percent per year?

(b) What would happen if the foreign currency

were at a forward discount of 6 percent per year?