1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
poizon [28]
3 years ago
8

Assume a speculator anticipates that the spot rate of the franc in three months will be lower than today’s three-month forward r

ate of the franc, $0.50 = 1 franc. Complete the following sentence explaining how this speculator can use $1 million to speculate in the forward market. The U.S. speculator should francs today for delivery in three months at today’s forward rate of the franc, which equals $0.50. What occurs if the franc’s spot rate in three months is $0.40? In three months, the speculator can purchase francs at $0.40 and sell them for the previously contracted rate of $0.50 per franc, thus profiting $0.10 on each franc. In three months, the speculator must purchase francs at $0.40 and resell them at $0.50 per franc, thus suffering losses of $0.10 on each franc specified in the forward contract. In three months, the speculator must purchase francs at $0.40 and resell them at $0.50 per franc, thus neither profiting nor losing from the transaction.
Business
1 answer:
Oksi-84 [34.3K]3 years ago
7 0

Answer:

Assume a speculator anticipates that the spot rate of the franc in three months will be lower than today’s three-month forward rate of the franc, .

a. The speculator can use $1 million to speculate in the forward market by purchasing a forward contract for 2,000,000 francs to be paid out in three months. This helps the speculator avoid losing money as the exchange rate decreases in period of three months.

b. Suppose the franc’s spot rate in three months is $0.40:

This means that the dollar is expected to appreciate in three months because its current rate is. It would take fewer dollars to purchase one franc in three months. The demand for dollars would increase because speculators looking to make a profit would hold as many dollars as possible while waiting for the currency to appreciate, then sell it for more than they purchased it for.

Hence, the speculator could make a profit of $0.10 on each franc.

Suppose the franc’s spot rate in three months is $0.60:

This means that the dollar is expected to depreciate in three months because its current rate is. It would take more dollars to purchase one franc in three months. The demand for dollars would decrease because speculators are expecting the currency’s value to fall in the coming three months.

The speculator would suffer a loss of $0.10 on each franc.

Suppose the franc’s spot rate in three months is $0.50:

This means that the value of the dollar is expected stay the same because its current rate is. It would take the same amount of dollars to purchase one franc in three months. The demand for dollars would remain constant.

The speculator would earn no profit no loss when the Franc’s spot rate in 3 months is $0.50.

Explanation:

You might be interested in
Explain how international trade allows a country to move beyond its production possibilities frontier.
Digiron [165]

Answer:

Increased international trade, especially exports, increases production efficiency which allows a country to move beyond its production possibilities frontier.

Explanation:

In business terms, a production possibilities frontier is a curve that shows how much two products in an economy are able to produce when the two products are competing over the same limited resources. The curve can also be used to determine the quantity of a product that can be produced in an economy when the economy is working at its maximum efficiency. There are many factors that affect the production possibilities frontier, namely;

International trade:

Trade is the exchange of goods and services for commercial interests. International trade involves trade between countries. Most countries trade in the form of exports and imports. Exports are goods and services taken to foreign countries while imports are goods and services received from other countries. When there are greater exports than imports, it means that more of your goods and services are on demand by other countries thus makes your currency stronger. An increased demand for domestic goods and services increases production efficiency which allows a country to move beyond its production possibilities frontier.

6 0
3 years ago
A rightward shift of the supply of loans curve would
Minchanka [31]

C. increase in the interest rate

3 0
2 years ago
3m is a master of the __________ pricing strategy. according to a 3m manager, "we hit fast, price high, and get the heck out whe
Alex777 [14]
E


I hope this helps and have a wonderful day filled with joy!!


<3
5 0
3 years ago
Which of the following happens when there are market failures? A) Firms compete more leading to more efficiency. B) The invisibl
lbvjy [14]

Answer:

The correct answer is option D.

Explanation:

A market failure refers to the situaion where the market forces fail to efficiently allocate resources. It happens because of a number of reasons such as externalities, monopoly, asymmetrical information, tragedy of commons etc.

In case of market failure, the government has to intervene to efficiently allocate resources. The failure of price mechanism to produce goods efficiemtly results in government to intervene.

5 0
3 years ago
Dwight, the general manager of a hotel, knows that one of his housekeeping employees has a serious substance-abuse issue. Dwight
Oksana_A [137]

Answer: relaxed change

                                                                               

Explanation: In simple words, it refers to a situation when a manager knows that he or she is stuck in an unavoidable issue but rather than facing it he or she chooses the second best alternative that involves low risk.

  In the given case, Dwight knew that substance abuse with an employee is a serious issue but rather than facing it on his won he decided to put it into his subordinate.

Thus, the given case is an example of relaxed change.

3 0
3 years ago
Other questions:
  • Advantages and disadvantages of price optimization system
    7·1 answer
  • When assessing the value of a business, is most important.
    12·2 answers
  • Thrope, Inc. purchased 2,400 pounds of direct material at a price of $1.30 per pound. The standard price of the material is $1.4
    6·2 answers
  • g You are the assistant to the CEO of a small technology firm that manufactures quality, premium-priced, stylish clothing. The C
    5·1 answer
  • Under the previous​ CEO, Konica/Minolta's management determined it was time to invest in​ __________ by offering new products to
    15·1 answer
  • Structural unemployment is sometimes said to result from a mismatch between the job skills that employers want and the job skill
    14·1 answer
  • Towne Station is saving money to build a new loading platform. Three years ago, they set aside $23,000 for this purpose. Today,
    8·1 answer
  • Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee's annual salary
    5·1 answer
  • *WILL AWARD BRAINLIEST IF CORRECT!*
    7·1 answer
  • If Anna buys a car for $18,000 with a down payment of $2,000 and is given a 3-year loan with an APR of 5 percent and monthly pay
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!