If a speculator expects that the Fed will intervene by exchanging euros for U.S. dollars, she would most likely ____ to capitalize on this intervention.

Question

Quizplus · Accepted Answer

If the speculator believes that the Fed will intervene by exchanging euros for U.S. dollars, she would expect the value of euros to decrease. To benefit from this anticipated decrease in value, the speculator should purchase euro put options, which would give her the right to sell euros at a predetermined price, thus allowing her to profit from the expected decrease in value.

If a Speculator Expects That the Fed Will Intervene by Exchanging