Question
Suppose the current spot exchange rate is 0.7412 USD/CAD, and the three-month forward rate is F 3 (USD/CAD)=0.7375. You are a U.S. based investor and
Suppose the current spot exchange rate is 0.7412 USD/CAD, and the three-month forward rate is F3(USD/CAD)=0.7375. You are a U.S. based investor and you are pretty confident that the spot exchange rate will be 0.7250 USD/CAD in three months.
- Calculate and interpret the current forward premium/discount. Assume 30-day months.
- Describe what speculative actions you would take in the forward market and calculate the expected profit if you can take a forward position on 800,000 CAD?
- If your expectations are incorrect and the spot rate turns out to be 0.7325 USD/CAD in 3-months, what is your realized speculative profit?
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Financial Mathematics
Authors: Cacildo Marques
1st Edition
8741574710, 979-8741574713
