You are trader at Tiger Capital. Todays market (bid-ask) rates for the number of USD per EUR are as follows: Spot rate: 1.1250 - 1.1254 USD = EUR 1.0 3 month forward rate: 1.1055 - 1.1060 USD = EUR 1.0 You think (i.e., have a hunch) that the EUR will weaken against the USD over the next 3 months and decide to do a trade today to exploit your hunch. Specifically, you sell 10 million EUR in the 3 month forward market today. You leave that position for 3 months. In 3 months from today, the spot exchange rate (number of USD per EUR) turns out to be 1.1100. How much profit or loss have you made? Give your answer to the nearest USD and if it is a loss, enter your amount with a MINUS sign.
You are trader at Tiger Capital.
Todays market (bid-ask) rates for the number of USD per EUR are as follows:
Spot rate: 1.1250 - 1.1254 USD = EUR 1.0
3 month forward rate: 1.1055 - 1.1060 USD = EUR 1.0
You think (i.e., have a hunch) that the EUR will weaken against the USD over the next 3 months and decide to do a trade today to exploit your hunch. Specifically, you sell 10 million EUR in the 3 month forward market today. You leave that position for 3 months.
In 3 months from today, the spot exchange rate (number of USD per EUR) turns out to be
1.1100. How much profit or loss have you made? Give your answer to the nearest USD and
if it is a loss, enter your amount with a MINUS sign.
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