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Kapinsky Capital Geneva (A). Christoph Hoffeman trades currency for Kapinsky Capital of Geneva. Christoph has $1010 million to begin with, and he must state all

Kapinsky Capital Geneva (A). Christoph Hoffeman trades currency for Kapinsky Capital of Geneva. Christoph has

$1010 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 divided by euro$1.3358/, while the 30-day forward rate is $ 1.3351 divided by euro$1.3351/.

a. If Christoph believes the euro will continue to rise in value against the U.S. dollar, so that he expects the spot rate to be$ 1.3600 divided by euro$1.3600/ at the end of 30 days, what should he do?

A. In this case, Christoph believes the dollar will be trading at $ 1.3600 divided by euro$1.3600/ in the open market at the end of 30 days, but he has the ability to buy or sell dollars at a forward rate of $ 1.3351 divided by euro$1.3351/. He should therefore buy euros forward 30 days (requires no actual cash flow up front), and at the end of 30 days take delivery of those euros and sell in the spot market at the higher dollar rate for profit.

B. In this case, Christoph believes the dollar will be trading at $ 1.3600 divided by euro$1.3600/ in the open market at the end of 30 days, but he has the ability to buy or sell dollars at a forward rate of $ 1.2800 divided by euro$1.2800/. He should therefore buy euros forward 30 days (requires no actual cash flow up front), and at the end of 30 days take delivery of those euros and sell in the spot market at the higher dollar rate for profit.

C. In this case, Christoph believes the dollar will be trading at $ 1.3351 divided by euro$1.3351/ in the open market at the end of 30 days, but he has the ability to buy or sell dollars at a forward rate of $ 1.3600 divided by euro$1.3600/. He should therefore buy euros forward 30 days (requires no actual cash flow up front), and at the end of 30 days take delivery of those euros and sell in the spot market at the higher dollar rate for profit.

D. In this case, Christoph believes the dollar will be trading at $ 1.2800 divided by euro$1.2800/ in the open market at the end of 30 days, but he has the ability to buy or sell dollars at a forward rate of $ 1.3351 divided by euro$1.3351/. He should therefore buy euros forward 30 days (requires no actual cash flow up front), and at the end of 30 days take delivery of those euros and sell in the spot market at the higher dollar rate for profit.

b. If Christoph believes the euro will depreciate in value against the U.S. dollar, so that he expects the spot rate to be $ 1.2800 divided by euro$1.2800/ at the end of 30 days, what should hedo?

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