Question
In December 2020, an investor expected the Australian dollars (AUDs) to depreciate in the next six months, and she took a short position in 3
In December 2020, an investor expected the Australian dollars (AUDs) to depreciate in the next six months, and she took a short position in 3 CME currency futures on AUD at $0.72/AUD. Each contract trades 100,000 AUDs, and the contract expires in June. Calculate the gain or loss for the following outcomes.
a) If in June 2021, the spot exchange rate turns out to be $0.68/AUD, how much is the total gain or loss for this investor?
b) If at the expiration time, the exchange rate is $0.84/AUD, how much is the total gain or loss?
c) If instead of using futures, the investor uses forward contract to trade the same amount of AUDs, will your answers in a) and b) change? Briefly explain.
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