Exam 5: Currency Derivatives

When the futures price is equal to the spot rate of a given currency,and the foreign country exhibits a higher interest rate than the U.S.interest rate,astute investors may attempt to simultaneously __________ the foreign currency,invest it in the foreign country,and __________ futures in the foreign currency.

Due to put-call parity,we can use the same formula to price calls and puts.

A U.S.corporation has purchased currency call options to hedge a 70,000 pound payable.The premium is $.02 and the exercise price of the option is $.50.If the spot rate at the time of maturity is $.65,what is the total amount paid by the corporation if it acts rationally