1. What is capital adequacy regulation? What was the intended purpose of the Basel Accord? Using the risk-weight categories, explain what unintended consequences came about leading up to the Financial crisis of 2008.
2. Suppose the spot exchange rate between Japanese yen (JPY) and Canadian dollars (CAD) is JPY/CAD=92.44. The interest rate in Japan is 0.25% p.a. and 1% p.a. in Canada. Please find the futures price for this currency pair if a contract is:
(a) 1 year
(b) 6 months
(c) 1 month until maturity.
In computing the futures prices, please make use of 360 days as one year. Is the Japanese yen trading at a forward discount or premium?