You enter into a FX forward that buy 1 million EUR with USD in two years when the spot rate is 1.20 (1 EUR = 1.20 USD) and the risk free interest rate in US is 2% and risk free interest rate in UK is 1%. One year later you decide to unwind the trade by entering 1Y forward in opposite direction as before when EUR/USD spot rate is 1.25 (1 EUR = 1.25 USD) and the US risk free rate is still 2% and risk free interest rate in UK is 1.5%. What is your market profit and loss in dollars? A. +$50000 B. -$67287 C. +$32278 D. +$67287

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You enter into a FX forward that buy 1 million EUR with USD in two years when the spot rate is 1.20 (1 EUR = 1.20 USD) and the risk free interest rate in US is 2% and risk free interest rate in UK is 1%. One year later you decide to unwind the trade by entering 1Y forward in opposite direction as before when EUR/USD spot rate is 1.25 (1 EUR = 1.25 USD) and the US risk free rate is still 2% and risk free interest rate in UK is 1.5%. What is your market profit and loss in dollars? A. +$50000 B. -$67287 C. +$32278 D. +$67287
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