1) The current spot exchange rate is $1.75/£ and the three-month forward rate is $1.85/£. You believe that the spot exchange rate will be $1.80/£ in three months?

2) What action do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? Assume that you would like to buy or sell £1,000,000 forward?

 

3) Diagram the dollar profit schedule (for the forward position you took above) against the future spot exchange rate quoted in American terms?

Answer rating: 100% (QA)

Question 1 Exchange Rate Expectation Given Current spot exchange rate 175 Threemonth ... View the full answer