Assume that the three-month forward exchange rate is $2.00/£ and a speculator believes that the spot rate in three months will be $2.05/£. How can this person speculate in the forward market? Also assume that the speculator is willing to take a position of about $20 million or £10 million. How much will the speculator earn if he or she is correct?

Question

Quizplus · Accepted Answer

The Answer of Assume that the three-month forward exchange rate is $2.00/£ and a speculator believes that the spot rate in three months will be $2.05/£. How can this person speculate in the forward market? Also assume that the speculator is willing to take a position of about $20 million or £10 million. How much will the speculator earn if he or she is correct?

Assume That the Three-Month Forward Exchange Rate Is $2