What is the size of a difference check on a 1-Year short forward GBP contract given that the size of the contract is GBP 280,000; the one-year forward rate is F1USD/GBP = 1

Finance Dec 26, 2020

What is the size of a difference check on a 1-Year short forward GBP contract given that the size of the contract is GBP 280,000; the one-year forward rate is F1USD/GBP = 1.56; and X1USD/GBP = 1.50?

A. Profit of USD 16,800

B. Loss of USD 16,800

C. Profit of USD 11,200

D. Loss of USD 11,200

Expert Solution

Solution :

Given Sale of forward contract at Forward rate 1GBP = 1.56$

The Rate at the end of Year 1 1GBP = 1.50$

Size of the contract = GBP 280000

Profit on sale of each pound = 1.56$-1.50$ =0.06$

Total Profit = GBP 280000 * 0.06$ = 16800 $

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