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.