A foreign exchange trader assesses the euro exchange rate three months hence as follows: $1.11 with probability

Question:

A foreign exchange trader assesses the euro three months hence as follows:
$1.11 with probability 0.25
$1.13 with probability 0.50
$1.15 with probability 0.25
The 90-day forward rate is $0.12.
a. Will the trader buy or sell euros forward against the dollar if she is concerned solely with expected values? In what volume?
b. In reality, what is likely to limit the trader’s speculative activities?
c. Suppose the trader revises her probability assessment as follows:
$1.09 with probability 0.33
$1.13 with probability 0.33
$1.17 with probability 0.33
If the forward rate remains at $1.12, will this new assessment affect the trader’s decision? Explain.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...