Question
In: Finance
If you believe the Brazilian real will fall from the present spot rate of $0.2255 /...
If you believe the Brazilian real will fall from the present spot rate of $0.2255 / Brazilian real, which speculative strategy would yield the largest speculative gain? a. buy futures on Brazilian real b. buy call options on the Brazilian real c. none of the other answers d. sell futures on Brazilian real.
Solutions
Expert Solution
Correct answer is D.
Sell future on brazilian real.
A future contract is to buy and sell specified asset (physical or financial) at a specified price on a specified future date. If one is anticipating that the price of the asset will increase in future he will buy a future. It means he will enter into a contractual agreement to buy the asset at the price decided today so that he can preserve himself from the price rise.
Here, you believe the Brazilian real will fall from the present spot rate, then speculative strategy that would yield the largest speculative gain will be to enter in to contract to sell the asset on present spot rate in future.
-->. buy call options on the Brazilian real is not a correct option as call option gives right to buy the asset at the strike price decided today. Here the anticipation is for price fall, right to buy option will not provide gain.
Hope it clarifies !
jeff jeffy answered 1 year agoRelated Solutions
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