Question
Suppose today's exchange rate is $1.480/. The three-month interest rates on dollars and euros are 4% per annum and 3% per annum, respectively. The three-month
Suppose today's exchange rate is $1.480/. The three-month interest rates on dollars and euros are 4% per annum and 3% per annum, respectively. The three-month forward rate is $1.475/. A foreign exchange advisory service has predicted that the euro will appreciate to $1.495/ within three months. Which strategy using forward contracts would give you the highest profit in the above situation and what will be the profit from the strategy per traded? Select one: a. Buy euros forward and sell them in the spot market in three months; $0.02 b. Buy euros forward and sell them in the spot market in three months; $0.015 c. Sell euros today and buy them in the spot market in three months; $0.01 d. Sell euros forward and buy them in the spot market in three months; $0.02 e. Buy euros forward and sell them in the spot market in three months; $0.01
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