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The current spot exchange rate is $1.70/£ and the three-monthforward rate is $1.71/£. You believe that the spot exchange ratewill be $1.69/£ in three months.(1) What actions do you need to take to speculate in the forwardmarket? What is the expected dollar profit from speculation? Assumethat you would like to buy or sell £1,000,000 forward.(2) What is your dollar profit if the spot exchange rate turnsout to be $1.79/£ in three months?(3) Diagram the dollar profit schedule (for the position youtake) against the future spot rate expressed in American terms.
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