Assume perfect foresight.The current spot rate is C$2.037 per British pound.The 3-month forward rate is C$2.0383 per British pound.The spot rate in three months will be C$2.04 per British pound.What position must an investor assume in order to make a profit of $17.00?
A)Pound 13,077 short position
B)Pound 10,000 long position
C)Pound 10,000 short position
D)Pound 13,077 long position

Question

Quizplus · Accepted Answer

To profit, the investor should take a long position in pounds. Buying pounds at the forward rate of C$2.0383 and selling them at the future spot rate of C$2.04 results in a profit. For a $17 profit, the calculation is: (2.04 - 2.0383) * 10,000 = $17.

Assume Perfect Foresight