A trader at Morgan Stanley becomes very bearish on the U.S. dollar after hearing the news that the U.S. trade deficit is deteriorating. He expects the euro to appreciate significantly against the dollar in the near future. Currently, the euro is trading for $1.20 in the spot market and $1.22 in the June futures. Each euro futures contract has 125,000 euros. 

Please answer the following questions. 

 

Should he buy or sell the June futures?

 

Suppose that he holds the futures position for one week and then close out at $1.26/euro. How much is the profit per contract based on the decision?

Answer rating: 100% (QA)

Based on the traders bearish outlook on the US dollar he should buy the June futures becaus... View the full answer