Do problem 4 again assuming you believe the September 2010 spot price will be $0.70750 per 10

Question:

Do problem 4 again assuming you believe the September 2010 spot price will be $0.70750 per 10 MXN.

Problem 4

Using the quotations in Exhibit 7.3, note that the September 2010 Mexican peso futures contract has a price of $0.77275 per 10 MXN. You believe the spot price in September will be $0.83800 per 10 MXN. What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (lOSS) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?

CME Group Currency Futures Contract Quotations EXHIBIT 7.3 Change Open interest High Low Settle Open Currency Futures Ja