Calculate the amount of profit

Assignment Help Financial Management

Reference no: EM131171755

A leader in your firm has been studying the foreign exchange market for a number of years and believes that she can predict several of the foreign currency exchange rates relative to the U.S. dollar. The firm has $500,000 to invest in the spot, forward, or options markets. Assume that the spot rate is $1.3435 to the euro and that the forward rate for 12 months is $1.3705 to the euro. However, this leader is sure that the exchange rate in 12 months will be $1.41 to the euro.

In a Word document, include the following:

•Explain how this leader in your firm can speculate on the belief that the euro will be $1.41 in 12 months.

•Calculate the amount of profit (ignoring exchange rate fees) that can be earned and the percentage return achieved.

•Recommend whether this speculative investment or another investment with similar or higher returns at lower risk should be selected. Explain your reasoning.

•Be sure to consider how the inflation rate would affect the return.

Reference no: EM131171755

Questions Cloud

Describe the elements of the brake system in a car : Describe the elements of the brake system in a car. Compare the disk brakes and drum brakes. Describe the basic working principle of friction based brakes [forces and how they relate to vehicle forces and deceleration]

Which stock would you consider to be riskier : Which stock would you consider to be riskier? Why?- If you knew that the beta coefficient of Cornhusker stock is 1.5 and the beta of Mustang is 0.9, how would your answer to Part a change?

How will equilibrium amount of savings and investment : Jamaica is a small open economy that has a trade surplus. Use savings/investment diagrams to answer the following: Suppose the Government of Jamaica decides to raise taxes. How will the equilibrium amount of savings, investment, and trade balance be ..

Graph a linear equation : What is the minimum information needed to be able to graph a linear equation? What process do you go through to graph a linear equation? Give an example, starting with a linear equation, and explain the steps you would use to graph it.

Calculate the amount of profit : Explain how this leader in your firm can speculate on the belief that the euro will be $1.41 in 12 months.- Calculate the amount of profit that can be earned and the percentage return achieved.

Increasing marginal volume for cost payers makes economic : Increasing marginal volume for cost payers makes economic sense if:

Explain what measures you would take to protect staff : Describe the various roles that probation/parole officers can take on including probation/parole officer roles as agency models, agents of rehabilitation, broker/advocate agents, and probation/parole officers as law enforcement agents.

The marginal revenue product : The marginal revenue product is:

Make either payment as scheduled : Shamrock Inc. was supposed to have received a payment of $30,000, 4 years ago, and $8,500, 2 years ago, from a customer who could not make either payment as scheduled.

User Account

All Pages