he current spot exchange rate is $1.55/e and the three-month forward rate is $1.
ID: 2804347 • Letter: H
Question
he current spot exchange rate is $1.55/e and the three-month forward rate is $1.50/. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/ in ssume that you would like to buy or sell 1,000,000. What actions do you need to take to speculate in the forward market? A. Sell 1,000,000 forward for $1.50/E B. Buy 1,000,000 forward for $1.50/6. C. Wait three months, if your forecast is correct buy 1,000,000 at $1.52/. D. Buy 1,000,000 today at $1.55/; wait three months, if your forecast is correct sell 1,000,000 at $1.62/E.Explanation / Answer
Spot Exchange Rate on Dollor against Euro =1/1.55
= $ 0.6452
3 Months Forward Rate on Dollor against Euro =1/1.50
=$ 0.6667
Estimated Exchange Rate =1/1.62
=0.6173
Option D is Correct : Buy Euro 1,000,000 today at $1.55/Euro :wait three month, if your forecast is corrext sell Euro 1,000,000 at $ 1.60/Euro
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