Suppose, on a certain day in February, a speculator observes the following prices in the foreign exchange and currency futures markets: GBP/USD spot: 1.6465 March futures: 1.6425 September futures: 1.6250 December futures: 1.6130 The speculator thinks that the markets are overestimating the weakness of sterling (GBP) against the dollar. How can she act on this view to make a profit? Under what circumstances do her action
Suppose, on a certain day in February, a speculator observes the following prices in the foreign exchange and currency futures markets: GBP/USD spot: 1.6465 March futures: 1.6425 September futures: 1.6250 December futures: 1.6130 The speculator thinks that the markets are overestimating the weakness of sterling (GBP) against the dollar. How can she act on this view to make a profit? Under what circumstances do her action
Chapter5: Currency Derivatives
Section: Chapter Questions
Problem 15QA
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Suppose, on a certain day in February, a speculator observes the following prices in the foreign exchange and currency futures markets:
GBP/USD spot: 1.6465
March futures: 1.6425
September futures: 1.6250
December futures: 1.6130
The speculator thinks that the markets are overestimating the weakness of sterling (GBP) against the dollar. How can she act on this view to make a profit? Under what circumstances do her actions lead to a loss?
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