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    Overview of spot-forward exchange rates

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    The current spot exchange rate is $1.55/£ and the 3M forward rate is $1.50/£. On the basis of your analysis of the exchange rate, you are pretty sure the spot will be $1.52/£ in 3M time. Assume that you'd like to buy or sell £1million.
    a) what actions do you need to take to speculate in the forward market? What is the expected dollar profit?
    b)If in 3M the spot turns out to be $1.46/£, what is your profit/loss in dollar terms?

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    Since I feel that the spot rate 3 M from now will be higher than the Forward rate agreement. I will enter into an agreement to buy pound through forward contract.
    a) At ...

    Solution Summary

    This job features spot-forward exchange rates.