A currency trader believes the yen will depreciate relative to the dollar in three months. The current spot rate for yen is $.008/yen and the six month forward rate is $.0085/yen. The currency trader agrees to enter into a three month forward contract with 100 million yen attached. The spot rate is $.0075/yen on the day the forward contract expires. What is the currency trader's profit/loss (in USD) from his forward contract? -100,000 100,000 -50,000 50,000

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? -50,000 50,000 100,000 -100,000

A forward contract forces its buyer to purchase the underlying asset at the forward rate. True False

An Italian firm will receive $10,000,000 in 6 months from its overseas operations. The company could buy a forward contract on 10 million dollars to hedge its foreign exchange risk. True False