Hi I'm confused by one of the points given in the ASET solutions for this question: "the spot price in 6 month's time may not be $1.16, e.g. if the dollar appreciates". I thought the risk here would be if the euro appreciates, not the dollar, as this would lead to a dollar spot price greater than 1.16 which would lead to the investors profits from the forward trade to fall? Is my thinking here incorrect? Thanks in advance.
I think you may be right. If the dollar appreciated to say 1.15, then the profit would be 1.1614/1.15 = 1.0099 per euro, which is a bigger euro profit. I will get that changed in the ASET for next year.
