You are German and own a portfolio of U.S. stocks worth $1 million. The current spot and 1-month forward rates are $1.1000/EURO. Interest rates are equal in both countries. You are worried that the results of the coming U.S. elections in 3 days could lead to a strong depreciation of the dollar.

Question 1: To hedge FX risk for the principal, you face two choices (1) buy/long forward $1 million, or (2) sell/short forward $1 million. Which is the correct choice? Three days later, your U.S. stock portfolio has gone up to $1.02 million. The spot and forward rates are now $1.1526/EURO.

Question 2: If the portfolio had not been hedged, what is the percentage return (rate of return) in euros over the past 3 days?

Question 3: If the portfolio is hedged, what is the profit on the hedge portfolio in euros? What is the percentage return on the hedge portfolio in euros?