Question 1) A leader in your firm has been studying the foreign exchange market for a number of years and believes that she can predict several of the foreign currency exchange rates relative to the U.S. dollar. The firm has $300,000 to invest in the spot, forward, or options markets. The spot rate is $1.2622 to the euro, and in 12 months, the forward rate is $1.2905 to the euro. However, this leader is sure that the exchange rate in 12 months will be $1.33 to the euro. Explain how she can speculate on the belief that the euro will be $1.33 in 12 months. Calculate the amount of profit (ignoring exchange rate fees) that will be earned and the percentage return achieved.
Question 2) All of the terms and paperwork necessary to export products and services can be very confusing. Please explain the advantages and disadvantages associated with using a letter of credit, a bill of exchange (or draft), and the Export-Import Bank of the United States.