Question
Assume there are no transactions costs. You currently pay 130 US-Dollars for 100 Euros. The continuously compounded US-Dollar interest rate is 1% and the continuously
Assume there are no transactions costs. You currently pay 130 US-Dollars for 100 Euros. The continuously compounded US-Dollar interest rate is 1% and the continuously compounded Euro interest rate is 2%. Suppose you will receive 2, 000, 000 US-Dollars and 1, 000, 000 Euros in 6 months. The current forward price of a forward contract (contract size is 125, 000 Euro) that matures in 6 months is F0,6mth= US-Dollar 1.2935/Euro. Suppose you short 8 forward contracts today.
How much US-Dollars and how much Euros do you have in 6 months?
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Accounting for Decision Making and Control
Authors: Jerold Zimmerman
9th edition
125956455X, 978-1259564550
