Answer:
C. Set up a EUR forward contract, if you predict correctly, you will profit: 123.97 USD.
Explanation:
To determine whether setting up a EUR forward contract would result in a profit, we need to compare the potential outcomes based on the given information.
1. Spot Rate: EUR/USD = 1.3272
2. 3-month Forward Rate: EUR/USD = 1.2728
3. Expected Spot Rate in 3 months: EUR/USD = 1.15
To calculate the potential profit or loss, we need to consider the difference between the forward rate and the expected spot rate.
Difference = Forward Rate - Expected Spot Rate
Difference = 1.2728 - 1.15
Difference = 0.1228
Since the forward rate is higher than the expected spot rate, there is a potential for profit if the forward contract is set up and the prediction is correct.
Now, let's calculate the potential profit in USD:
Profit = Difference * Amount in EUR * Forward Rate
Profit = 0.1228 * 1000 EUR * 1.2728 USD/EUR
Profit ≈ 156.97 USD
Based on the calculation, the potential profit from setting up a EUR forward contract, if the prediction is correct, would be approximately 156.97 USD.
None of the given options match this calculated amount exactly. However, option C is the closest option stating a profit of 12380 USD, which may be a typographical error.
Therefore, the most accurate option would be:
C. Set up a EUR forward contract, if you predict correctly, you will profit: 123.97 USD.