Suppose today's exchange rate is $1.480/€. The three-month interest rates on dollars and euros are 4% per annum and 3% per annum, respectively. The three-month forward rate is $1.475/€. A foreign exchange advisory service has predicted that the euro will
<p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Suppose today's exchange rate is $1.480/€. The three-month interest rates on dollars and euros are 4% per annum and 3% per annum, respectively. The three-month forward rate is $1.475/€. A foreign exchange advisory service has predicted that the euro will appreciate to $1.495/€ within three months.</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Which strategy using forward contracts would give you the highest profit in the above situation and what will be the profit from the strategy per € traded?</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Select one:</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">a.</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Sell euros forward and buy them in the spot market in three months; $0.02</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">b.</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Sell euros today and buy them in the spot market in three months; $0.01</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">c.</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Buy euros forward and sell them in the spot market in three months; $0.01</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">d.</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Buy euros forward and sell them in the spot market in three months; $0.015</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">e.</p><p style="box-sizing: inherit; margin-top: 0px; margin-bottom: 0px; font-family: "Aspira Webfont", Helvetica, Arial, sans-serif; color: rgb(34, 34, 34); white-space: normal; background-color: rgb(255, 255, 255); font-variant-numeric: inherit !important; font-variant-east-asian: inherit !important; font-stretch: inherit !important; line-height: inherit !important;">Buy euros forward and sell them in the spot market in three months; $0.02</p><p><br/></p>
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Suppose today's exchange rate is $1.480/€. The three-month interest rates on dollars and euros are 4% per annum and 3% per annum, respectively. The three-month forward rate is $1.475/€. A foreign exchange advisory service has predicted that the euro will
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