1. Suppose people expect the U.S. to impose restrictions on imports from the European Union. Explain what would happen to the value of the Euro relative to the dollar and why. (Note: assume no change in restrictions on imports from the U.S. to Europe.)
2. If interest parity holds and the interest rate in Canada. is 5.5 percent, the interest rate in the US is 4 percent, the spot exchange rate is .88 U.S. dollars per Canadian dollar, what must be the one-year forward exchange rate? Also, is the U.S. dollar expected to appreciate or depreciate against the Canadian dollar?
3. Suppose you sell a Treasury bond futures contract for a price of 98.5 percent of the face value of $100,000. Assume that the Treasury bond futures price rises to 99.5 percent. What is your loss or gain?