QUESTION 3 If a speculator observes that the current 3-months forward rate on Sw

Question

QUESTION 3 If a speculator observes that the current 3-months forward rate on Swiss francs is $1.051 franc, but he/she expects that the spot rate in 3 months will be $1.10 1 franc, then this speculator would now o a. buy dollars on the forward market. O b. buy francs on the forward market. O c.sell francs on the forward market. d. buy francs on the spot market and simultaneously sell francs on the 3-months forward market if the current spot rate is $1.07 1 franc. QUESTION4 Suppose the price index in Japan is 151 and price index in the United Kingdom is 165. If the exchange rate between Japan and the United Kingdom is 133, then the real exchange rate is: O a. 171.4361 b. 187.3308 c. 145.3311 d. 121.7152

Explanation / Answer

3. The right answer is: buy francs on the forward market.

Explanation: The speculator speculates that the value of franc will appreciate. So, he/she will buy francs from the forward market to book profit.

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