Reference no: EM132605566
a) Why do you think international trade volume has increased over time? In general,how are inefficient firms affected by the reduction in trade restrictions among countries and the continuous increase in international trade?
b) Randy Rudecki purchased a call option on British pounds for $.02 per unit. The strike price was $1.45 and the spot rate at the time the option was exercised was $1.46. Assume there are 31,250 units in a British pound option. What was Randy's net profit on this option? Show your work.
c) What is the impact of a weak home currency on the home economy, other things being equal? What is the impact of a strong home currency on the home economy, other things being equal?
d) Assume you have $1,000,000 to invest
Current spot rate of the pound = $1.30
90 day forward rate of pound = $1.28
3 month deposit rate in US = 3%
3 month deposit rate in Great Britain = 4%
If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S.dollars you will have after 90 days? Show your work.