Speculating Based on Intervention
Response to the following problem:
Assume that you expect that the European Central Bank (ECB) plans to engage in central bank intervention in which it plans to use euros to purchase a substantial amount of U.S. dollars in the foreign exchange market over the next month. Assume that this direct intervention is expected to be successful at influencing the exchange rate.
a. Would you purchase or sell call options on euros today?
b. Would you purchase or sell futures on euros today?