Jasper Pernik is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/$ and the 6-month forward rate is ¥128.53/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper's expectations are correct, then he could profit in the forward market by ________ and then ________.
A) buying yen for ¥128.00/$; selling yen at ¥128.53/$
B) buying yen for ¥128.53/$; selling yen at ¥128.00/$
C) There is not enough information to answer this question.
D) He could not profit in the forward market.

Question

Quizplus · Accepted Answer

Jasper's expectation is that the yen will appreciate (strengthen) to ¥128.00/$ in the next six months. Therefore, he should buy yen in the forward market at the current rate of ¥128.53/$ and sell it in the future at the higher rate of ¥128.00/$, resulting in a profit. Option A is incorrect because buying yen at ¥128.00/$ and selling it at ¥128.53/$ would result in a loss, as the yen is expected to depreciate. Option C is incorrect because all the necessary information is provided. Option D is incorrect because Jasper can profit in the forward market if his expectations are correct.

Jasper Pernik Is a Currency Speculator Who Enjoys "Betting" on Changes