Consider a trader who takes a long position in a six-month forward contract on the euro.The forward rate is $1.75 = €1.00; the contract size is €62,500.At the maturity of the contract the spot exchange rate is $1.65 = €1.00.

Question

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The trader locked in a rate of $1.75 per euro but the euro weakened to $1.65 at contract maturity. The loss per euro is $0.10 ($1.75 - $1.65). For €62,500, the total loss is €62,500 * $0.10 = $6,250.

Consider a Trader Who Takes a Long Position in a Six-Month