Andrea Cujoli 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/$. Andrea thinks the yen will move to ¥128.00/$ in the next six months. If Andrea buys $100,000 worth of yen at today's spot price and sells within the next six months at ¥128/$ she will earn a profit of ________.

Question

Quizplus · Accepted Answer

If Andrea buys $100,000 worth of yen at today's spot price, she can convert it to yen at the rate of:

$100,000 ÷ ¥129.87/$ = ¥771,086.86

If she sells it within the next six months at ¥128/$, she will receive:

¥771,086.86 ÷ ¥128/$ = $6,017.91

Her profit will be the difference between the amount she receives and the amount she spent, which is:

$6,017.91 - $4,556.97 = $1,460.94

Therefore, the correct answer is C.

Andrea Cujoli Is a Currency Speculator Who Enjoys "Betting" on Changes