The current spot exchange rate is $1.20/euro. The current 90-day forward exchange rate is $1.18/euro. You expect the spot rate to be $1.22/euro in 90 days. a. According to your expectation, is the dollar appreciating or depreciating against the Euro? b. How would you speculate using a forward contract? c. If many people speculate the way you have responded in part b., what pressure will that place on the value of the current 90-day forward exchange rate?

The current spot exchange rate is $1.20/euro. The current 90-day forward exchange rate is $1.18/euro. You expect the spot rate to be $1.22/euro in 90 days. a. According to your expectation, is the dollar appreciating or depreciating against the Euro? b. How would you speculate using a forward contract? c. If many people speculate the way you have responded in part b., what pressure will that place on the value of the current 90-day forward exchange rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The current spot exchange rate is $1.20/euro. The current 90-day forward exchange rate is
$1.18/euro. You expect the spot rate to be $1.22/euro in 90 days.
a. According to your expectation, is the dollar appreciating or depreciating against the Euro?
b. How would you speculate using a forward contract?
c. If many people speculate the way you have responded in part b., what pressure will that place on
the value of the current 90-day forward exchange rate?

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