Suppose a trader takes a position on June 5th 2021, in one September 2021 EURO (EUR) future contract at USD1.3094/EUR. The trader holds the position until the last day of trading when the spot price is USD1.2939/EUR. This will be the final settlement price because of price convergence. The trader has EUR125,000 for this investment. (i) If the trader had a long position and he was a speculator, calculate his profit or loss for the position above. (ii) If the trader had a short position and he was a speculator, calculate his profit or loss for the position above. (iii) If the trader had a long position and he was a hedger, calculate his profit or loss for the position above. (iv) If the trader had a short position and he was a hedger, calculate his profit or loss for the position above. (b) Discuss factors that you would consider in evaluating the political risk associated before making FDI in a foreign country.
(a) Suppose a trader takes a position on June 5th 2021, in one September 2021 EURO (EUR) future contract at USD1.3094/EUR. The trader holds the position until the last day of trading when the spot price is USD1.2939/EUR. This will be the final settlement price because of price convergence. The trader has EUR125,000 for this investment.
(i) If the trader had a long position and he was a speculator, calculate his profit or loss for the position above.
(ii) If the trader had a short position and he was a speculator, calculate his profit or loss for the position above.
(iii) If the trader had a long position and he was a hedger, calculate his profit or loss for the position above.
(iv) If the trader had a short position and he was a hedger, calculate his profit or loss for the position above.
(b) Discuss factors that you would consider in evaluating the political risk associated before making FDI in a foreign country.
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