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What is the expected dollar profit from speculation

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Problem 1: The current spot exchange rate is $1.50/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?

A. Sell €1,000,000 forward for $1.50/€.

B. Buy €1,000,000 forward for $1.55/€.

C. Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€

D. Buy €1,000,000 today at $1.50/€; wait three months, if your forecast is correct sell €1,000,000 at $1.62/€

Reference no: EM132841177

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