1. You are a Japan-based investor who is confident that the spot exchange rate will be ¥110/$ in six months. The six-mon
Posted: Wed Mar 09, 2022 8:41 am
1. You are a Japan-based investor who is confident that the spot
exchange rate will be
¥110/$ in six months. The six-month forward exchange rate is
¥115/$.
2.Would you rather buy or sell US$1,000,000 forward? What is the
expected profit in ¥ from your speculation?
3.What would be your speculative profit/loss in ¥ if the spot
exchange rate turns out to be ¥120/$ in six months?
4. Draw a payoff profile for your investment. Label on the graph
the exchange rates of ¥120/$, ¥115/$, ¥110/$, and your total profit
or loss associated with each of these exchange rates. Please also
label the axes of the graph.
exchange rate will be
¥110/$ in six months. The six-month forward exchange rate is
¥115/$.
2.Would you rather buy or sell US$1,000,000 forward? What is the
expected profit in ¥ from your speculation?
3.What would be your speculative profit/loss in ¥ if the spot
exchange rate turns out to be ¥120/$ in six months?
4. Draw a payoff profile for your investment. Label on the graph
the exchange rates of ¥120/$, ¥115/$, ¥110/$, and your total profit
or loss associated with each of these exchange rates. Please also
label the axes of the graph.