Question
A private speculator expects the yen to depreciate 7% against the dollar over the next three months. How can the speculator try to profit on
A private speculator expects the yen to depreciate 7% against the dollar over the next three months. How can the speculator try to profit on these expectations through a) spot market transactions only, and b) forward market transactions only (assume no margin requirements or restrictions on transactions in credit markets)? What will be the expected dollar profit on a $1 million position in each case? What other considerations should factor into the speculators choice between the spot and forward markets for purposes of profiting on future movements of the yen?
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