electro Inc. is a manufacturing firm based in the United States. Today is the 1^st of January 2021, and the firm has to pay 5 million Great British pounds (GBP) to a British supplier in six months time (1^st July 2021). The treasurer of Electro Inc. wants to hedge against exchange rate movements by entering into a forward contract with ABC Bank. The 6-month forward quote for the USD/GDP exchange rate is 2.0631.

1. Calculate and explain the payoff from a long position in a forward contract for Electro Inc., if the spot exchange rate is 2.0631 on the 1^st of July 2021
2. Calculate and explain the payoff from a short position in a forward contract for ABC Bank, if the spot exchange rate is 2.0631 on the 1^st of July 2021.