Question

# Judy is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market....

Judy is a currency speculator who enjoys "betting" on changes in the foreign currency exchange market. Currently the spot price for the Japanese yen is ¥129.87/\$ and the 6-month forward rate is ¥128.53/\$. Judy thinks the yen will move to ¥128.00/\$ in the next six months. If Judy's expectations are correct, then she could profit in the forward market by ________ and then ________.

Select one:

a. She could not profit in the forward market.

b. There is not enough information to answer this question.

c. buying yen for ¥128.53/\$; selling yen at ¥128.00/\$

d. buying yen for ¥128.00/\$; selling yen at ¥128.53/\$

Current spot price for japanese yen , P0 = ¥129.87/\$

this means : 1\$ is currently = ¥129.87

6-month forward rate , P6 = ¥128.53/\$

this means, with the forward contract the price will be locked in at P6

1\$ =  ¥128.53

Spor rate after 6 months, S6 =  ¥128.00/\$

this means 1\$ =  ¥128.00

Notice that in the above 3 cases, the value of a dollar (in terms of yen ) decreases continuously, this means that the value of Japanese yen (relative to dollar ) is increasing

since the price of Japanese yen is expected to increase in 6 months, judy would like to buy it today for a lower price and then sell it at a higher price in 6 months to make a profit.

.This will be possible when she would buy yen at ¥128.53/\$ by entering into the forward contract and then selling yen in the market after 6 months at ¥128.00/\$.

.Hence , correct option is c.