Suppose that the 90-day forward rate is $1.19/euro:, the current spot rate is $1.20/euro:, and you expect the future spot rate in 90 days to be $1.21/euro:. What contract would you make to speculate in the forward market by either buying or selling : 10,000,000?

Answer: $168,067.23

Step-by-step explanation:

The forward rate of $1.19/€ is less than your expected future spot rate of $1.21/€.

Therefore,

if you buy the euro forward, you should be able to sell euros at a higher dollar price.

You should speculate by buying the euro forward, in which case you wish to sell $10,000,000 forward.

The euro value of $10,000,000 is

$10,000,000 / ($1.19/€) = €8,403,361.34.

The euro value is €8,403,361.34 in the forward market.

If we contract to buy €8,403,361.34 forward, the expected dollar profit to be realized is:

[$1.21/€-$1.19/€] * €8,403,361.34 = $168,067.23

Therefore,

The contract you would make if you speculate in the forward market either buying or selling is:

€168,067.23