A speculator who expects the euro to depreciate might:

Question

Quizplus · Accepted Answer

Selling euros forward allows the speculator to lock in an exchange rate at which they can sell euros in the future. By purchasing euros in the spot market just before fulfilling the forward obligation, the speculator can take advantage of any depreciation in the euro and sell the euros for more than they paid for them, making a profit. This strategy is known as a short hedge. Option B involves purchasing euros forward, which would result in a loss if the euro depreciated as expected. Option C involves purchasing futures contracts on euros, which is similar to selling euros forward, but may involve more complex trading strategies that are not necessary for a speculator expecting euro depreciation.

A Speculator Who Expects the Euro to Depreciate Might