The Current Spot Exchange Rate Is $1

question 59

Multiple Choice

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/€.

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Definitions:

Coordinate Dimensions

Coordinate dimensions are measurements that provide the exact placement or location of features on a part, specified from a reference point, line, or surface known as a datum.

Common Axis

Refers to the shared axis around which components or features are symmetrical or rotate, promoting alignment.

Rotates

The action of an object turning or spinning around an axis, either in a circular or semi-circular direction.

Mechanism

A system of moving parts designed to perform a specific function within a larger machine or device.