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Suppose today's exchange rate is $1.480/€.

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.

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?

Select one:

a.

Sell euros forward and buy them in the spot market in three months; $0.02

b.

Sell euros today and buy them in the spot market in three months; $0.01

c.

Buy euros forward and sell them in the spot market in three months; $0.01

d.

Buy euros forward and sell them in the spot market in three months; $0.015

e.

Buy euros forward and sell them in the spot market in three months; $0.02


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