You are observing exchange rates provided by your bank. The current spot exchange rate is $1.95 per pound and the three-month forward rate is $1.90 per pound. On the basis of your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.92 per pound in three months. Assume that you would like to buy or sell 1,000,000.

Required:

a-1. What actions do you need to take to speculate in the forward market?

a-2. What is the expected dollar profit from speculation?

b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.86 per pound in three months?