The three-month futures price for the British pound is $1.3090/£. You expect the spot price three months from today to be $1.2760/£. The British pound contract size is £62,500.
a. If you are a speculator would you buy the futures contracts or sell them. Explain your answer.
b. How much profit would you make if you trade 22 contracts and the expectations come true?
c. If you were a MNC with A/P of £3 million due in three months, would you buy or sell the pound futures. Explain your answer.
d. How many contracts would you buy or sell? How much would your pound A/P be worth in dollars?