4. a. A euro = $1.25. b. The indirect value of the euro must have declined over the last month. c. The forward premium is 2 percent. If the forward rate is used to forecast, the ex- pected degree of appreciation over the next year is ($.51 - $.50)/$.50 = 2%, which is the same as the forward rate premium. 5. a. The peso is valued at $.125 today. Since the peso appreciated, the U.S. exporters are favorably affected. b. The zloty was worth about $.345 last year. Since the zloty depreciated, the U.S. importers were favorably affected. c. Last year, the cross rate of the peso in zloty = $.10/$.345 = .2898. Today, the cross rate of the peso in zloty = $.125/$.32 = .391. The percentage change is (.391 - .2898)/.2898 = 34.92%. 6. a. Depreciate b. Appreciate c. Depreciate d. Appreciate 7. a. The spot rate depreciated from $1.20 to $1.152. You receive $.05 per unit. The buyer of the put option exercises the option, and you buy the euros for $1.22 and sell them in the spot market for $1.152. Your gain on the put option per unit is ($1.152 - $1.22) + $.05 = -$.018. Total gain = -$.018 X 100,000 = -$1,800. b. The futures rate one year ago was equal to: $1.20 X (1 - .02) = $1.176. So the futures rate is $1.176. The gain per unit is $1.176 - $1.152 = $.024 and the total gain is $.024 X 100,000 = $2,400.
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