1. Suppose the rate of appreciation of the dollar rela- tive to the yen over the next 90 days is normally distributed with a mean of - 1% and a standard de- viation of 3%. Use a spreadsheet program to graph the distribution of the future yen-dollar exchange rate. If the current spot exchange rate is ¥99 >$, and the 90-day forward rate is ¥98.30 >$, describe the distribution of yen profits or losses from selling $5,000,000 forward?
2. Suppose that the spot exchange rate is $1.55 >£, that the beta on a forward contract to buy pounds with dollars is 1.5, and that the expected excess dollar rate of return on the market portfolio is 7%. What is the expected profit or loss on a forward purchase of £1,000,000? Explain how this can be an equilibrium.