If a speculator expects that the Fed will intervene by exchanging dollars for Japanese yen, she would most likely ____ to capitalize on this intervention.

Question

Quizplus · Accepted Answer

Purchasing yen call options allows the speculator to profit if the yen's value increases due to the intervention. Option contracts give the holder the right to purchase yen at a predetermined price, allowing the holder to earn a profit if the market price of yen exceeds that price. The use of futures and put options, on the other hand, benefit from a decrease in the yen's value, which is not in line with the expected intervention. Buying Treasury bonds is not relevant to this situation.

If a Speculator Expects That the Fed Will Intervene by Exchanging