If you use covered interest arbitrage, what will your percentage gross

1. Use the following information.Spot rate of the euro = $1.331- year forward rate of the euro = $1.301- year interest rate in the European market = 6%1- year interest rate in the US market = 3%If you use covered interest arbitrage, what will your percentage gross return be in a year? (You are a US investor)a) 3.61%b) 2.88%c) 4.05%d) 4.28%2. The 1-year interest rate in Canada is 5% and the 1-year interest rate in the US is 2%. The spot rate of the Canadian dollar is $.75. Assume that the IRP holds. What is the forward rate? Is this a premium or discount? (You are a US investor)a) Discount, $.729b) Discount, $.772c) Premium, $.729d) Premium, $.7723. Assume that locational arbitrage ensures that spot exchange rates are properly aligned. Also assume that you believe in international Fisher effect. The spot rate of the British pound is $1.25. The spot rate of the Swiss franc is .4 pounds. You expect that the one-year inflation rate is 10 percent in the U.K., 9 percent in Switzerland, and 1 percent in the U.S. The one-year interest rate is 6% in the U.K., 2% in Switzerland, and 4% in the U.S. What is your expected spot rate of the Swiss franc in one year with respect to the U.S. dollar?a) $.51b) $.48c) $.46d) $.434. Brian Tull sold a call option on Canadian dollars for $.05 per unit. The strike price was $.80, and the spot rate at the time the option was exercised was $.83. Assume Brian immediately purchased the Canadian dollars to be delivered when the option was exercised. Also assume that there are 20,000 units in a Canadian dollar option. What was Brian’s net profit or loss on the call option?a) $400 profitb) $400 lossc) $300 profitd) $300 loss5. Assume that one year ago, the spot rate of the British pound was $1.36. One year ago, the one-year futures contract of the British pound exhibited a discount of 5%. At that time, you sold futures contracts on pounds, representing a total of 1,000,000 pounds. From one year ago to today, the pound’s value depreciated against the dollar by 10 percent. Determine the total dollar amount of your profit or loss from your futures contract.a) $68,000 profitb) $68,000 lossc) $56,000 profitd) $56,000 loss6. Diamond Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.40 in a year. The following interbank lending and borrowing rates exist:Lending Rate Borrowing RateU.S. dollar 5.0% 5.5%Singapore dollar 10.0% 15.0%Diamond Bank considers borrowing 10 million Singapore dollars in the interbank market and investing the funds in dollars for one year. What is the profit (or loss) that could be earned from this strategy?a) $212,500 lossb) $212,500 profitc) $325,000 profitd) $325,000 loss7. Assume the Canadian dollar is equal to $.88 and the Peruvian Sol is equal to $.35. The value of the Peruvian Sol in Canadian dollars is:A) about 0.4 Canadian dollars.B) about 0.3 Canadian dollars.C) about 3.3 Canadian dollars.D) about 2.5 Canadian dollars.8. Assume that you observe the following exchange rate in the market.1 euro = $1.451 peso = $.141 euro = 10.56 pesosWhat is your triangular arbitrage gain assuming that you have $100,000 to invest?a) $1,959b) $2,318c) $1,566d) $2,408