Question

The exchange rate today $1.00 = €0.85. You are a currency speculator. Suppose you have $1,000,000 in dollars and 1,000,000 in euros in your portfolio and you believe the dollar will depreciate in value versus the euro (€).  Suppose you know in one week the exchange rate will be$1.00 = €0.76. Your intent is to profit from currency speculation. Using the money in your portfolio to make currency trades, calculate how much profit you could make in dollars. Provide your answer in U.S. dollars rounded to one decimal place. Use a negative sign "-" for negative values. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

Answer 1

Exchange rate today: $1 = 0.85 euro or 1 euro = $1.176471

Dollar will depreciate in one week and change exchange rate to: $1 = 0.76 euro or 1 euro = $1.315789

You have $1,000,000 and 1,000,000 euro which is $1,176,471. Thus, total dollar you have $2,176,471

You can buy euro from $1,000,000 which would be 850,000 euros. You will have 1,850,000 euro. After one week you can convert back the euro into dollar which would be 1,850,000 * 1.315789 = $2,434,211 which is the net gain of $2,434,211 - $2,176,471 = 257,740

answered by: anonymous