The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. You enter into a short position on €1,000

Question

3 years ago

14

. At maturity, the spot exchange rate is $1.60/€. How much have you made or lost? A. Lost $100 B. Made €100 C. Made $150 D. Lost $50

2 answers:

Ugo [173] · Answer 1 · 2022-01-14T04:02:59+03:00

Ugo [173]3 years ago

7 0

Answer:

A. Lost $100

Explanation:

Short position refers to a trading technique which involves selling the currency for it to buy later and make a profit.

To calculate the loss if you don't have a forward contract:

Your loss will be

= €1,000 x ($1.50/€ - $1.60/€)

= $100

Fantom [35] · Answer 2 · 2022-01-14T05:38:43+03:00

Answer:

Answer is A. Lost $100.

Refer below for the explanation.

Explanation:

Short position includes selling the money.

You will get (1.5 × 1,000) = $1,500.

In any case, you could get (1.6 × 1,000) = $1,600

In the event that you didn't have the forward agreement.

So you lost $1,600 - $1,500 = $100.