Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1
An investor enters into a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.7 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (w) 1.69 and (b) 1.72?
Expert Solution
Answer (A):
The investor has entered into contract for sale of 100,000 British Pound at a forward rate of 1.70 US dollars per pound and buys at a spot rate of 1.69 dollars per pound.
Gain/Loss = 100000 * (1.70-1.69)
= 100000 * $0.01
= $1000
Therefore the investor gains $1000 if he sells at $1.70
Answer (B):
The investor has entered into contract for sale of 100,000 British Pound at a forward rate of 1.70 US dollars per pound and buys at a spot rate of 1.72 dollars per pound.
Gain/Loss = 100000 * (1.70-1.72)
= 100000 * ( $0.02 )
= ( $2000 )
Therefore the investor loses $2000 if he sells at $1.70
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
