The current spot exchange rate is $1.20/euro. The current 90-day forward exchange rate is $1.18/euro.

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QUESTION:

The current spot exchange rate is $1.20/euro. The current 90-day forward exchange rate is $1.18/euro. You expect the spot rate to be $l.22/euro in 90 days. How would you speculate using a forward contract? If many people speculate in this way, what pressure is placed on the value of the current forward exchange rate?


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