uestion 29 (Bonus 4): Which of the following two statements is correct? Statemen

Question

uestion 29 (Bonus 4): Which of the following two statements is correct? Statement A: A carry-trader would cam a profit if the USD'EUR spot rate would remain unchanged or appreciate during the duration of the carry trade. Statement B: If a speculator would want to earn a profit from the current mispricing of the spot rate compared to its UIRP value, the speculator would start hisher trading stratcgy by borrovw ig in EUR a) Statement A is correct b) Statement B is correct c) Both statements are correct d) Both statements are wrong Question 30 (Bonus 5): Assume that your company expects to receive a GBP 2,000,000 payment one year from now. The one-year actual forward rate of the USD/GDP is F1.42 and the synthetic one-year forward is/p-1.46. Which of the following statements is correct? Statement A: You can hedge this natural short position in GBP by entering a one-year long forward GBP contract. Statement B: Given the information above you should hedge your position with a money market hedge instcad of an actual one-year short forward GBP contract a) Only Statement A is correct b) Only Statement B is correct c) Both statements are correet d) Both statements are wrong

Explanation / Answer

Q29. Answer is D. As in the first statement position of carry trader is not mentioned whether is in Long or Short position. And in second statement, if there is a opportuninty for Arbitrage trading strategy by borrowing in EUR is not acorrect.

Q30. Answer is A.

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