The spot dollar-pound rate is $1.50/£1 and the forward rate is also $1.50/£1. You expect the spot dollar-pound rate to be $1.30/£1 in one year's time. You have £1 million (dollar equivalent is $1.5 million) to speculate with. Do you buy or sell £1 million in the forward market? What is your profit in pounds if you are correct and the spot dollar sterling rate $1.30/£1 in one year's time? What is your loss in pounds if you are wrong and the spot sterling rate is 30/61 in one year's time?
The spot dollar-pound rate is $1.50/£1 and the forward rate is also $1.50/£1. You expect the spot dollar-pound rate to be $1.30/£1 in one year's time. You have £1 million (dollar equivalent is $1.5 million) to speculate with. Do you buy or sell £1 million in the forward market? What is your profit in pounds if you are correct and the spot dollar sterling rate $1.30/£1 in one year's time? What is your loss in pounds if you are wrong and the spot sterling rate is 30/61 in one year's time?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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The spot dollar-pound rate is $1.50/£1 and the forward rate is also $1.50/£1. You
expect the spot dollar-pound rate to be $1.30/£1 in one year's time. You have £1
million (dollar equivalent is $1.5 million) to speculate with.
(i) Do you buy or sell £1 million in the forward market?
(ii) What is your profit in pounds if you are correct and the spot dollar sterling rate
is $1.30/£1 in one year's time?
UG
V
MathTyp
(iii) What is your loss in pounds if you are wrong and the spot sterling rate is
$1.80/£1 in one year's time?
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