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Use the following information to answer the next two questions.

A currency trader believes the yen will depreciate relative to the dollar in three months. The current spot rate for yen is $.008/yen and the six month forward rate is $.0085/yen. The currency trader agrees to enter into a three month forward contract with 100 million yen attached. The spot rate is $.0075/yen on the day the forward contract expires. What is the currency trader's profit/loss (in USD) from his forward contract?

-100,000

100,000

-50,000

50,000

Instead of using the forward contract, suppose the currency trader used the spot market to trade based on his belief. What would have been his profit/loss(in USD) at the end of the three month period?

-50,000

50,000

100,000

-100,000

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92085639

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