The Current Spot Exchange Rate Is $1

The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.Based on your analysis of the exchange rate,you are confident that the spot exchange rate will be $1.62/€ in three months.Assume that you would like to buy or sell €1,000,000.What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

A) Sell €1,000,000 forward for $1.50/€.
B) Buy €1,000,000 forward for $1.50/€.
C) Wait three months,if your forecast is correct buy €1,000,000 at $1.52/€.
D) Buy €1,000,000 today at $1.55/€; wait three months,if your forecast is correct sell €1,000,000 at $1.62/€.

Correct Answer:

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