Assuming pure spot-market speculation strategy

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Reference no: EM131477027

Suppose, the current spot rate for US Dollar ($) against the Australian Dollar (A$) is $0.7268/A$, while the six-month forward rate is $0.7033/A$. An investor expects that the spot rate will be $0.6800/A$ in the next six months. The investor has two choices. Either he can invest $100,000 or he can invest A$100,000.

i. Calculate the investor's expected profit assuming a pure spot-market speculation strategy. In your calculation, indicate whether the investor is to invest $100,000 or A$100,000.

ii. Calculate the investor's expected profit assuming purchase or sale of the six-months forward. In your calculation, indicate whether the investor is to invest $100,000 or A$100,000.

Reference no: EM131477027

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