Question 1 Suppose a forex trader makes the following statement,“liquid currencies would be more volatile than the illiquid ones.â€Explain why would you agree or disagree with the trader’sstatement.
Question 2 A forex trader has $1,000,000 (or its Swiss francequivalent) to use in a forex speculation. The spot exchange rateis USD1.0524/CHF and the relevant 3-month interest rates(un-annualized) in the US and Switzerland are 3.8% and 5.3%,respectively. Suppose the trader can make a precise forecast andthe future spot rate in 90 days will be USD1.0627/CHF, explain howthe trader can perform arbitrage. How much arbitrage profit can thetrader obtain? Explain your working
