The Current Spot Exchange Rate Is $1

question 9

Multiple Choice

The current spot exchange rate is $1.45/€ and the three-month forward rate is $1.55/€.Based upon your economic forecast,you are pretty confident that the spot exchange rate will be $1.50/€ in three months.Assume that you would like to buy or sell €100,000.What actions would you take to speculate in the forward market? How much will you make if your prediction is correct?

• A)Take a short position in a forward.If you're right you will make $15,000.
• B)Take a long position in a forward contract on euro.If you're right you will make $5,000.
• C)Take a short position in a forward contract on euro.If you're right you will make $5,000.
• D)Take a long position in a forward contract on euro.If you're right you will make $15,000.

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Definitions:

Trichromatic Theory

The trichromatic theory of color vision posits that the human eye has three types of receptors sensitive to red, green, and blue light, which combine to produce the perception of all colors.

Cones

Photoreceptor cells in the retina of the eye that function best in relatively bright light and enable the perception of color.

Feature Detector Cells

Neurons in the brain that respond to specific characteristics of a visual stimulus, such as angles or movement.

Visual Cortex

The part of the cerebral cortex in the brain responsible for processing visual information received from the eyes.