Question
An JPY/USD trader has taken a long position of 65 mil USD and a short position of 100 mil JPY at the exchange rate of
An JPY/USD trader has taken a long position of 65 mil USD and a short position of 100 mil JPY at the exchange rate of 0.65 JPY/USD. The position will be settled within two days. The current market rates for JPY/USD is 0.648/0.652.
As a part of the company policy, the trader's offer price is only allowed to at most deviate from the market bid/ask price by +/-0.003. For example, if the market bid price is 0.7JPY/USD, the trader is only allowed to set her bid price between 0.697 and 0.703 JPY/USD.
Explain how trader can manage her position through shading rates if the market rates have moved down to 0.641/0.645. Calculate the potential profits based on your strategy, assuming the positions are cleared.
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