What is pro?t in both dollars and pounds

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The spot dollar-pound rate is $1 .40/£1 and the fonNard rate is also $1 .40/£1 . You expect the spot dollar-pound rate to be $1 .55/£1 in one year's time. You have £1 million (dollar equivalent is $1.4 million) to speculate with in the forward exchange market.

(i) Do you buy or sell £1 million in the forward market?

(ii) What is your pro?t in both dollars and pounds if you are correct and the spot dollar sterling rate is $1 .55/£1 in one year's time? Show your calculations.

(iii) What is your loss in dollars and pounds if you are wrong and the spot sterling rate is $1 .20/£1 in one year's time? Show your calculations.

Reference no: EM133130087

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