Question: Suppose that the 90-day forward rate is $1.19/, the current spot rate is $1.20 /, and you expect the future spot rate in 90 days

Suppose that the 90-day forward rate is $1.19/€, the current spot rate is $1.20 /€, and you expect the future spot rate in 90 days to be $1.21/€. What contract would you make to speculate in the forward market by either buying or selling €10,000,000? What is your expected profit? If the standard deviation of the 90-day rate of appreciation of the euro relative to the dollar is 3%, what range covers 95% of your possible profits and losses?

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The forward rate of 119 is less than your expected future spot rate of 121 Therefore if you buy the ... View full answer

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