Suppose a speculator expects a depreciation in the value of the dollar over and above the forward rate, he will sell US $ 1,000 three-month forward at the rate of Rs 40.50/US $. If, on maturity, the...

Suppose a speculator expects a depreciation in the value of the dollar over and above the forward rate, he will sell US $ 1,000 three-month forward at the rate of Rs 40.50/US $. If, on maturity, the US dollar depreciates to Rs 40, the speculator will get Rs 40,500 under the forward contract. At the same time, he will exchange Rs 40,500 at the then future spot rate of Rs 40/US $ and will get US $ 1,012.50. Both activities—selling and purchasing of US dollars will be simultaneous.