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Calculate the gain or loss of the trader

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Reference no: EM132398344

A trader sold $1 million worth of forward contracts on dollars at a forward rate of 0.78 pounds per dollar. The trader has a short position. Assume that when the forward contract comes due that the spot rate is equal to 0.745 pounds per dollar.

  • When the forward contract comes due what is the trader obligated to do? Explain.
  • Explain what is meant by the following assertion: selling a forward contract on dollars is the exact same transaction as buying a forward contract on pounds.
  • Calculate the gain or loss of the trader when the forward contract comes due. Show all your work.

Reference no: EM132398344

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