Question

On July: On July 1, 2017, a company enters into a forward contract to buy 10 million Japanese yen on January 1, 2018. 1, 2017, a company enters into a forward contract to buy 10 million Japanese yen on January 1, 2018. On September 1, 2017, it enters into a forward contract to sell 10 million Japanese yen on January 1, 2018. Describe the payoff from this strategy.

Answer 1

Answer:

The reward in this strategy will depend on the international price at which the Yen is placed in the purchase and sale periods.

Example:

If in July it enters into a contract to buy the 10 million Japanese Yen on January 1, 2018. At a price of 100 Yen per dollar.

Then in September the Yen does not cost 100 per dollar but it costs 108 Yen per dollar. Then I sell what I received in the first contract at a more expensive price and I will get a profit by exchange rate.