Andrea is a currency speculator who enjoys "betting" on changes in the foreign currency exchange...
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Andrea is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is Y129.87/U$ and the 6-month forward rate is Y128.53/U$. And Andrea believes that the yen will move to Y128.00/U$ in the next 6 months. How could she profit from her belief by using the forward market, that is, should she buy or sell the Japanese yen forward? How much profit (in terms of U.S. dollars) could she make per forward contract (size = US$100,000) if the yen indeed moves to Y128/U$? What would happen to Andrea's position in forward contracts if the yen moves to Y129.00/U$? Determine Andrea's profit/loss per contract under the second spot rate scenario.
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