Suppose today's exchange rate is $1.55/. The six-month interest rates on dollars and euros are 6% and

Question:

Suppose today's is $1.55/€. The six-month interest rates on dollars and euros are 6% and 3%, respectively. The six-month forward rate is $1.5478. A foreign exchange advisory service has predicted that the euro will appreciate to $1.5790 within six months.
a. How would you use forward contracts to profit in the above situation?
b. How would you use money market instruments (borrowing and lending) to profit?
c. Which alternatives (forward contracts or money market instruments) would you prefer? Why?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...