the £/$ spot rate is £1.00/$1.80 and the 1-year forward rate is also £1.00/$1.80. You expect the spot £/US$ rate to be £1.00/$1.65 in 1-year's time. You have $ 1,000,000 to speculate with.
1. Do you buy or sell £1,000,000 in the forward market? If so, why?
2. Find what is your profit in £s if you are correct and the spot rate is £1.00/US$1.65 in a year's time?
3. Find what is your profit or loss in £s if you are wrong and the spot rate is £1.00/$2.00?