Question

Jasper Pernik 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/$. Jasper thinks the yen will move to ¥128.00/$ in the next six months. If Jasper buys $100,000 worth of yen at today's spot price her potential gain is ________ and her potential loss is ________.

Answer 1

The correct answer is B. Buy yen; the forward rate.

Step-by-step explanation:

Taking into account that Jasper acquires an amount for a higher price per dollar today, with the reduction of this difference it is expected that he will have a profit margin within 6 months. However, the rate expected for month 6 is not convenient for this bettor because it represents a loss against the value that he considers the Yen to move, which is 0.53 / $.