Question

The current spot exchange rate is $1.55/€ 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 $1.52/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? Group of answer choices Sell euro today at the spot rate, buy them forward. Take a long position in a forward contract on €1,000,000 at $1.50/€. Buy euro today at the spot rate, sell them forward. Take a short position in a forward contract on €1,000,000 at $1.50/€.

Answer 1

Answer:

The answer is "Take a long position in a forward contract on €1,000,000 at $1.50/€".

Explanation:

In the long position cause the purchasing of the money, and it will be paying: $(1.5 \times 1,000,000) = \ 1,500,000$

And you're also planning to sell and get on the markets: $(1.52 \times 1,000) = \ 1,520,000.$

Therefore, you'll get: $\ 1,520,000 - \ 1,500,000 = \ 20,000.$