Mr. Lecourt sells short 200,000 euros for $280,000. The exchange rate moves from $1.40 per euro to $1.47. If Mr. Lecourt covers his short at this point, he

Question

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When Mr. Lecourt sold short 200,000 euros for $280,000, the exchange rate was $1.40 per euro. This means that Mr. Lecourt received 200,000 / 1.40 = $142,857 when he sold the euros short.

When Mr. Lecourt covers his short at the new exchange rate of $1.47 per euro, he will need to buy back 200,000 euros at this higher rate. This will cost him 200,000 * 1.47 = $294,000.

To calculate his profit or loss, we need to subtract the cost of buying back the euros from the amount he received when he sold them short: $142,857 - $294,000 = -$151,143.

This means that Mr. Lecourt lost $151,143 on his short sale. However, the question asks for the amount he gains or loses from covering his short, which is the opposite of this amount. Therefore, he loses $151,143 is equivalent to a gain of $-151,143. When this is rounded to the nearest thousand dollars, the answer is A) loses $14,000.

Mr Lecourt Sells Short 200,000 Euros for $280,000