An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is

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An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is

(a) 1.3900 and

(b) 1.4200?

(c)Draw the investor

EXPERT ANSWER

trader will gain = (1.4-1.39)*100,000 =$1000

trader will lose = (1.42-1.4)*100,000 = $2000