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# 1. As the financial manag

1. As the financial manager of Avanti Co. you have an account payable of 120 million Euros in three months. Given the following information you are planning to use options or Futures to protect against the risk of a rising Euro. (30 Points)Information: the current spot rate St (\$/?) =\$1.25/?Options:Contract size = 62,500 Euro; three months call options with Strike price = \$1.30/?;Call premium = \$0.12/?Futures:Contract size = 125,000 Euro; Three months futures contracts with F = \$1.32/?;a. Diagram Avanti?s Call option and futures position on the same diagram.b. What is Avanti?s break-even future spot price on the option contract?c. What is Avanti?s break-even future spot price on the futures contracts?d. Calculate Avanti?s gain or lose on option and futures if the Euro settled at St=\$1.35/?2. As the money manager of Boston Bank you have \$1,000,000 available for six months. You have the opportunity to lend the fund in U.S. or lend the fund to prospective customers in Montreal or Landon.Use the following information to answer this problem: (45Points)- Present spot rate: \$1.7120/?\$0.8861/C\$- Six month forward rate: \$1.6726/?\$0.8742/C\$- Interest rate in U.S. is 8.00% annual- Interest rate in U.K. is 10.5%- Interest rate in Canada is 9.5%a. Are interest rates and forward rates in equilibrium? Why or why not? Show your work.b. Where should you invest for maximum yield?c. What forward rate would create an equilibrium situation associated with investing in U.S. or Canada?d. Would your decision about where to invest change if the U.K. interest rate was 15%?e. If there is an arbitrage opportunity, for a transaction size of U.S. \$1,000,000, (or ?1,000,000) that you can borrow, how can you take advantage of the situation without taking undue risks? Show your work and profit or losses.3. The Euro spot rate was quoted at \$0.95/? in New York. At the same time, the Swiss francs was quoted at \$0.5838/SF. (15 Points)a. What would you expect the price of Euro to be in Switzerland?b. If the price of Euro were quoted in Frankfurt at ? 0.55/SF, how would you make a profit?4. If the U.S. dollar appreciated by 50% against the Mexican peso. By how much did the peso depreciated against the U.S. dollar during the same period? (5 Points)