Question
You run a US-based firm that imports olive oil from Italy. Because your revenues from selling to customers in the United States are in US
You run a US-based firm that imports olive oil from Italy. Because your revenues from selling to customers in the United States are in US dollars but you pay your olive oil suppliers in Euros, you face currency risk. To hedge your risk, you have just taken out a long position in Euro FX forward contracts. These contracts mature in 1 year and have a contract size of 100 Euros. The table below shows selected market data as of today and 3 months from today.
Suppose that 3 months from today (i.e., at t=3/12) you receive an unexpected inheritance from your long-lost aunt and decide to close your business, including closing out your hedge position, and retire. Based on the data in the table, what will be realized profit or loss, in US dollars, per contract on your forward position when you close it in month 3? If a loss, please report as a negative number. (Be careful to account for the contract size in your answer.)
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