The expected profit assuming normal distribution

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Reference no: EM132009398

The current exchange rate is 0.56 USD/NZD and the 180 day forecast indicates that NZD will appreciate by an average of 10%. The standard deviation of the expected change in exchange rate is 16%. The 180-day forward rate is 0.60 USD/NZD. If you want to speculate on NZD over the next 180-day;

a) Describe the steps you would take ( be specific as to which currency you buy and/or sell forward and how you would realize the profit).

b) Calculate how much expected profit in USD you can make on a national amount of $100 million or its equivalent in NZD.

c) Establish a 95% bound around the expected profit assuming normal distribution.

Reference no: EM132009398

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