Forward Contracts:
Calculate the gain or loss to the holder and to the writer of the forward contract who agrees to buy foreign currencies
at a specific price.Assume that on May 1, the writer of the forward contract agrees to sell 3,000,000 foreign currencies at a specific price of $0.22 per foreign currency (FC) with delivery in 30 days (May 31).Assume the spot rate at the end of the forward period is $0.20.
What is the entry to the holder on May 1.
Explain how the value of the forward contract changes over time.

Question

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The Answer of Forward Contracts:
Calculate the gain or loss to the holder and to the writer of the forward contract who agrees to buy foreign currencies
at a specific price.Assume that on May 1, the writer of the forward contract agrees to sell 3,000,000 foreign currencies at a specific price of $0.22 per foreign currency (FC) with delivery in 30 days (May 31).Assume the spot rate at the end of the forward period is $0.20.
What is the entry to the holder on May 1.
Explain how the value of the forward contract changes over time.

Forward Contracts: Calculate the Gain or Loss to the Holder and to and to the Writer