Mr.Lecourt sells short one contract for September delivery of 125,000 euro for $134,375.Mr.Lecourt covers his short when the exchange rate is $1.15 per euro.Mr Lecourt

Question

Quizplus · Accepted Answer

To calculate Mr. Lecourt's profit or loss, we need to use the following formula:

Profit/Loss = (Selling Price - Buying Price) x Contract Size

Selling Price = $134,375
Buying Price = $125,000 ÷ 1.15 = $108,695.65
Contract Size = €125,000

Profit/Loss = ($134,375 - $108,695.65) x €125,000
Profit/Loss = $25,679.35 x 1.15
Profit/Loss = €29,522.21

Since Mr. Lecourt sold short, he was betting on the euro depreciating in value. However, the euro actually appreciated from $1.075 to $1.15. Therefore, Mr. Lecourt incurred a loss of €29,522.21, which is equivalent to $8,375 at the exchange rate of $1.15 per euro. Therefore, the correct answer is choice A) loses $8,375.

MrLecourt Sells Short One Contract for September Delivery of 125,000