Your bank advisor recommends you to invest EUR 100,000 in U.S. Dollar assets for a period of 3 months. When making the investment, you can either use a 3-month forward contract or speculate based on your expectations of the exchange rate in 3 months from today. If you make the investment using a forward contract, you can earn a return of EUR 800. If you speculate using your expectations of the future exchange rate, you expect that you will also earn a return of EUR 800. 

Do you prefer to make the investment using a forward contract or by speculating? Explain.

Answer rating: 100% (QA)

Deciding between the forward contract and speculation depends on your risk tolerance and preference ... View the full answer