The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€.You enter into a short position on €1,000.At maturity,the spot exchange rate is $1.60/€.How much have you made or lost?

Question

Quizplus · Accepted Answer

By entering a short position on €1,000 at a forward rate of $1.50/€, you agreed to sell €1,000 for $1,500 in three months. At maturity, the spot rate is $1.60/€, meaning the €1,000 would have been worth $1,600 on the open market. Since you sold for $1,500 instead, you lost $100.

The Current Spot Exchange Rate Is $1