Question
Hans Schmidt is speculating on the movement of currencies. Hans has $10 million to begin with, and he must state all profits at the end
Hans Schmidt is speculating on the movement of currencies. Hans has $10 million to begin with, and he must state all profits at the end of any speculation in U.S. dollars. The spot rate on the euro is $1.3358/, and the 30-day forward rate is $1.3350/.
a. If Hans believes that the euro will continue to rise in value against the U.S dollar, so that he expects the spot rate to be $1.3600/ at the end of 30 days, what should he do? (10 points)
b. If Hans believes that the euro will depreciate in value against the U.S. dollar, so that he expects the spot rate to be $1.2800/ at the end of 30 days, what should he do? (10 points)
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