Consider a Trader Who Takes a Long Position in a Six-Month

question 2

Multiple Choice

Consider a trader who takes a long position in a six-month forward contract on the euro.The forward rate is $1.75 = €1.00; the contract size is €62,500.At the maturity of the contract the spot exchange rate is $1.65 = €1.00.

• A)The trader has lost $625.
• B)The trader has lost $6,250.
• C)The trader has made $6,250.
• D)The trader has lost $66,287.88.

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Definitions:

Balance of Payments

A record of all economic transactions between the residents of a country and the rest of the world in a given period.

Financial Account

A component of a country's balance of payments that records investments and transactions of financial assets between residents and non-residents.

Positive Number

A number greater than zero, indicating a quantity or value that is above the neutral or zero point on a scale.

Appreciation

An increase in the value of an asset or currency over time, often due to economic or market factors.