Spot exchange rate = $1.40/1

Forward rate = $1.40/1.

You expected spot dollar-euro exchange rate in 1 year to be $1.55/1.

Imagine you have 1,000,000 to speculate in the forward exchange market.

(i) Do you sell or buy 1,000,000 in the forward market?

(ii) Assume in 1 year exchange rate is $1.55/1. What is your profit in dollars and euros if you are correct?

(iii) Assume in 1 year exchange rate is $1.20/1. What is your loss in dollars and euros?