Jacques Clousean trades currency for a Swiss bank. He has $1,000,000 to invest.

Question

Jacques Clousean trades currency for a Swiss bank. He has $1,000,000 to invest. The current spot rate is S0.5820/SF. the three-month forward rate is S0.5640/SF. If he expects the spot rates to reach S0.6250/SF in three months, how would he speculate? If he expects the spot rates to reach S0.S521/SF in three months, how would he speculate? For parts a) and b), calculate Jacques expected profit assuming he buys or sells SF three months forward to speculate. Show the profit from the speculation in both dollars and percent. Make sure your language is specific about the actions you will take along with the calculations.

Explanation / Answer

If he sells:
Profit per SF = $0.5640 - $0.5521 = $0.0119
Total SF sold = $1,000,000/$0.5640 = 1,773,050
Total Profit = $0.0119 x 1,773,050 = $21,099.29
Percentage Profit = $21,099.99/$1,000,000 = 2.1099%

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.