The company hired You as a financial consultant to manage the currency risk. You expect that the US’ rate will increase by 500 base point on 6 month rate. You convince the company to sign a forward...

The company hired You as a financial consultant to manage the currency risk. You expect that the US’ rate will increase by 500 base point on 6 month rate. You convince the company to sign a forward contract with The Arab Bank.

1. What kind of forward exchange rate should the company sign with the Arab bank. Which currency would you choose to be long and which currency short. Explain why

2. Suppose when you called the Arab bank, they told you that the 6 month forward rate is 0.74J/$. If the rate is wrong, explain how would you take advantages of this mistake? Explain How it works- draw a clear draft.

3. How much would be your profit/Loss given that your expectation materialized- the US gov increase the rate by 500 point.