Question

Assume the current Euro-Dollar exchange rate is 0.9 EUR/USD. Based on your analysis you expect the Euro to depreciate. What is your trading strategy? Discuss. How much would you invest in this strategy? Note: Not missing any other info or graphs.

Answer 1

I expect the the Euro to depreciate so I will be trying to purchase the call option on the American dollars or I will be trying to purchase the put option on the European euros, or I will be trying to take the long position in futures in United States dollars or I will take the short positions in future in European euros, because I am expecting the United States dollars to appreciate and European Euros to depreciate.

My trading strategy will be to capitalise upon The fall of European Euros and capitalise upon the appreciation of United States dollars.

I will be trying to take the positions in the derivatives market whether in forward, or in futures, or in options in order to maximize my rate of return.

I can currently buy the forward contract of dollars and short the forward contracts of euros in order to gain from the fall of Euros against Dollars in future.