To speculate and potentially profit from your expectation, you would want to enter into a forward contract to buy euros and sell dollars in 90 days. Here's how you would do it:

1. Enter into a 90-day forward contract to buy euros at the forward rate of F$/€ = 1.18. This means that in 90 days, you are obligated to buy euros and sell dollars at this rate, regardless of the spot rate at that time.

2. Wait for 90 days. If your expectation is correct and the spot rate becomes E$/€ = 1.22, then you will be able to buy euros at a cheaper rate (1.18) than the market rate (1.22).

3. After buying euros at the forward rate, you can immediately sell them at the spot rate. The difference between the spot rate and the forward rate is your profit.

4. The profit per euro is 1.22 - 1.18 = $0.04. So, for every euro transacted, you make a profit of $0.04.

Remember, this strategy involves risk. If the spot rate in 90 days is less than the forward rate you contracted, you would incur a loss.

Question

To speculate and potentially profit from your expectation, you would want to enter into a forward contract to buy euros and sell dollars in 90 days. Here's how you would do it:

1. Enter into a 90-day forward contract to buy euros at the forward rate of F$/€ = 1.18. This means that in 90 days, you are obligated to buy euros and sell dollars at this rate, regardless of the spot rate at that time.

2. Wait for 90 days. If your expectation is correct and the spot rate becomes E$/€ = 1.22, then you will be able to buy euros at a cheaper rate (1.18) than the market rate (1.22).

3. After buying euros at the forward rate, you can immediately sell them at the spot rate. The difference between the spot rate and the forward rate is your profit.

4. The profit per euro is 1.22 - 1.18 = $0.04. So, for every euro transacted, you make a profit of $0.04.

Remember, this strategy involves risk. If the spot rate in 90 days is less than the forward rate you contracted, you would incur a loss.

Knowee AI · Accepted Answer

To speculate and potentially profit from your expectation, you would want to enter into a forward contract to buy euros and sell dollars in 90 days. Here's how you would do it:

1. Enter into a 90-day forward contract to buy euros at the forward rate of F$/€ = 1.18. This means that in 90 days, you are obligated to buy euros and sell dollars at this rate, regardless of the spot rate at that time.

2. Wait for 90 days. If your expectation is correct and the spot rate becomes E$/€ = 1.22, then you will be able to buy euros at a cheaper rate (1.18) than the market rate (1.22).

3. After buying euros at the forward rate, you can immediately sell them at the spot rate. The difference between the spot rate and the forward rate is your profit.

4. The profit per euro is 1.22 - 1.18 = $0.04. So, for every euro transacted, you make a profit of $0.04.

Remember, this strategy involves risk. If the spot rate in 90 days is less than the forward rate you contracted, you would incur a loss.

The current spot exchange rate is E$/€ = 1.20. The current 90-day forward exchange rate is F$/€ = 1.18. You strongly expect the spot rate to be $1.22 per euro in 90 days. How would you speculate (take exchange rate risk with expectation that you will make profits) using a forward contract?

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