1. The current spot exchange rate is 1.85 U.S. dollar per Pound (E$/= 1.85) and the three-month forward rate isF$/= 1.90. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will beE$/= 1.93. in three months. Assume that you have1,000,000 available to buy or sell currency.
2. (a)What actions can you take to speculate (i.e. "take a bet") in the forward market? What is the expected dollar profit from such speculation?
3. (b)What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to beE$/= 1.86 ?