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Important information about Spot-forward exchange rates

The current spot exchange rate is $1.55/£ and the 3M forward rate is $1.50/£. On the basis of your analysis of the exchange rate, you are pretty sure the spot will be $1.52/£ in 3M time. Assume that you'd like to buy or sell £1million.

a) what actions do you need to take to speculate in the forward market? What is the expected dollar profit?

b)If in 3M the spot turns out to be $1.46/£, what is your profit/loss in dollar terms?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M928734

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