Suppose That a Speculator Notes That the Current Three-Months Forward

question 10

Multiple Choice

Suppose that a speculator notes that the current three-months forward rate on the euro is $1.36 and the speculator expects that, in three months, the euro will have a value of $1.40. In this situation, the speculator would __________ euros on the forward market, and this activity __________ for the speculator.

• A) buy; involves risk
• B) buy; involves no possible risk
• C) sell; involves risk
• D) sell; involves no possible risk

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