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 speculator's choice between the spot and forward markets for purposes of profiting on future movements of the yen?

The Foreign Emhanga Marl-mt: Background Note and PmbIa-m Set 231.033 Exhibit I Spot and Forward Exchange Rates Current: 1 thumb 3 Months 6 Months 12 Hnnlhs Swirlinga 1.4690166 55152 166.1156 362.1269 560523 Deuisuhe mark 2.6316126 22:16 64154 1261r 1 65 2??!226 Franm Franc 6.6616626 $166 2631296 565596 1 19411351 Yen 15426136 6.16 3312? 15.162 164113? SIZIF.'a 1.2141613 51"3 121'6 161'11 24f12 aLLS. dam par unit dummy. Exhibit 2 Cross-Spat Exchange Ratesil Dill FF Yen EM - .auawm 1.316651 FF 3.2??BIBB - 4.335534 Yen 7532321356 23.1565616 - \"aimdun-Lidhain'oupmtadmumdmmwmlnummmmmruufmmmmm m. MammawranmdFFMnammpl-madinmspwimm