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The pound spot rate is pound100180 and the 1-year forward

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the £/$ spot rate is £1.00/$1.80 and the 1-year forward rate is also £1.00/$1.80. You expect the spot £/US$ rate to be £1.00/$1.65 in 1-year's time. You have $ 1,000,000 to speculate with.

1. Do you buy or sell £1,000,000 in the forward market? If so, why?

2. Find what is your profit in £s if you are correct and the spot rate is £1.00/US$1.65 in a year's time?

3. Find what is your profit or loss in £s if you are wrong and the spot rate is £1.00/$2.00?

Reference no: EM13363679

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