International Financial Management 6th Edition by Sanjiv Eun, Cheol Resnick, Bruce Sabherwal

Exercise 16

Using the quotations in Exhibit 7.3, note that the September 2010 Mexican peso futures contract has a price of $0.77275 per 10 MXN. You believe the spot price in September will be $0.83800 per 10 MXN. What speculative position would you enter into to attempt to profit from your beliefs Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes