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 her potential gain is ________ and her potential loss is ________.

Question

Quizplus · Accepted Answer

Andrea's potential gain is unlimited because if the yen moves to ¥128.00/$ her $100,000 worth of yen will be worth more dollars than when she purchased them. Her potential loss, however, is limited to $100,000 because that is the amount she invested. Therefore, the best choice is D.

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