International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 7

Suppose that the 90-day forward rate is $1.19/€, the current spot rate is $1.20 /€, and you expect the future spot rate in 90 days to be $1.21/€. What contract would you make to speculate in the forward market by either buying or selling :10,000,000 What is your expected profit If the standard deviation of the 90-day rate of appreciation of the euro relative to the dollar is 3%, what range covers 95% of your possible profits and losses