Find the currency traders profit or loss from their contract

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Reference no: EM131901905

1. A currency trader believes the pound will appreciate relative to the dollar in three months. The current spot rate for pounds is $1.075/£ and the three month forward rate is $1.088/£.

The currency trader agrees to enter into a three month forward contract with 25 million pounds attached. The spot rate is £.995/$ on the day the forward contract expires.

Find the currency trader's profit/loss (in USD) from their forward contract. Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.

2. Instead of using the forward contract, suppose the currency trader used the spot market to trade based on his belief. What would have been his profit/loss(in USD) at the end of the three month period?

Reference no: EM131901905

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