The current spot exchange rate is $1.55/ and the three-month forward rate is $1.50/. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/ in three months. Assume that you would like to buy or sell 1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

Multiple Choice

Sell 1,000,000 forward for $1.50/.

Buy 1,000,000 forward for $1.50/.

Wait three months, if your forecast is correct buy 1,000,000 at $1.52/.

Buy 1,000,000 today at $1.55/; wait three months, if your forecast is correct sell 1,000,000 at $1.62/.