Currently the spot rate between the Canadian dollar and the US dollar is C$$1\mathrm{.}3174/$U$ and the $3-$month forward rate is C$$1\mathrm{.}3334/$U$$.$ However, you believe that the spot exchange rate will move to C$$1\mathrm{.}3034/$U$ in the next $3$ months.

Answer:

$(1)$ Do you believe that the Canadian dollar will appreciate or depreciate? By how much $($in percentage term$)?$

$(2)$ How could you profit from your belief by using the forward market, that is should you buy or sell US dollar forward? Suppose that you have authorization to use $$1$ million for speculation purpose. How much profit $($in terms of Canadian dollars$)$ could you make if the spot exchange rate indeed moves to C$$1\mathrm{.}3095/$U$ at the end of $3$ months?

$(3)$ What would happen to your position in forward contracts if the exchange rate moves to C$$1\mathrm{.}35/$U$$?$ Determine your profit$/$loss $($in terms of Canadian dollar for the same $$1$ million authorized to use$)$ under this scenario.