You are an established speculator with an excellent reputation, but you do not have any liquid funds at the moment. You are sure that the dollar is going to appreciate in the near future, even though the forward exchange rate implies dollar depreciation. How can you set yourself up to profit from the appreciation of the dollar that you expect but the forward market does not expect to occur?

Question

Quizplus · Accepted Answer

Selling foreign currency forward allows you to lock in a price for selling foreign currency in the future, anticipating that the dollar will appreciate. If the dollar appreciates as expected, you can buy the foreign currency at a lower rate in the spot market at the time of settlement, thus profiting from the transaction.

You Are an Established Speculator with an Excellent Reputation, but You