Question

What is meant by speculation? How can speculatipon take place in the spot and forward markets?

What is meant by speculation? How can speculatipon take place in the spot and forward markets?

Homework Answers

Answer #1

Speculation: Speculation is the act of trading in an asset or conducting financial transaction that has a significant risk of losing most with the expectation of a substantial gain. With speculation , the risk of loss is more than offset by the possibility of a huge gain. Speculation in foreign exchange is an act of buying or selling the foreign currency under the conditions of uncertainty with a view to earning high gains.

Speculators buy currency when it is weak and sell when it is strong.

Speculation in forward and spot market :

If the spot rate of the currency is expected to increase in future , then speculator buys forward and sell on the spot the currency bought by him. If the speculator expected a fall in the exchange rate , then he sells forward at the current rate and buy the spot when the currency is needed for delivery.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Advantages of futures markets compared to forward markets. 1. How do financial futures markets overcome the...
Advantages of futures markets compared to forward markets. 1. How do financial futures markets overcome the liquidity problems associated with forward markets? 2. How do financial futures markets overcome the default risk problems associated with forward markets?
What is meant by cocreating value in service markets? Using a cafe, explain how service quality...
What is meant by cocreating value in service markets? Using a cafe, explain how service quality can be managed effectively via input from customers and companies. Then, provide another example of cocreation in practice.
Explain what is meant by a strong currency? explain how the currency markets work? identify what...
Explain what is meant by a strong currency? explain how the currency markets work? identify what causes fluctuations in the exchange rate? discuss the advantages and disadvantages of a weak dollar
What is meant by the three-month forward exchange rate?
What is meant by the three-month forward exchange rate?
1. Explain the difference between the spot price of an asset and its forward price. 2....
1. Explain the difference between the spot price of an asset and its forward price. 2. If you take the short position on a call option or put option what is the maximum payoff you can receive? What is the maximum profit you can make?
1.Utopian economics characterizes speculation as stabilizing yet reality economics said that speculation could be de-stabilizing. Explain...
1.Utopian economics characterizes speculation as stabilizing yet reality economics said that speculation could be de-stabilizing. Explain these two views. 2.Let’s assume that market is inefficient. They why don’t more people beat the market? 3.Show how efficient markets is the child of free-market thought. 4.Explain what is meant by rational irrationality and explain an example that is not directly related to finance. 5.Why does an efficient market imply a normal distribution in stock returns? 6. Let’s play the following game: Guess...
What is the difference between a spot foreign exchange rate and a forward foreign exchange rate?...
What is the difference between a spot foreign exchange rate and a forward foreign exchange rate? How could an Indonesian exporter use the forward rate to hedge foreign exchange risk?
Explain the difference between a spot exchange rate and a 90 day forward rate? What is...
Explain the difference between a spot exchange rate and a 90 day forward rate? What is the advantage of forward rates over spot rates? Why does is cost more to use a forward rate?
What is the difference between the forward and the futures markets? What are the pros and...
What is the difference between the forward and the futures markets? What are the pros and cons associated with using each one?
Suppose the spot exchange rate for the Canadian dollar is Can$1.10 and the six-month forward rate...
Suppose the spot exchange rate for the Canadian dollar is Can$1.10 and the six-month forward rate is Can$1.07. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$3.14?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT