Speculating with Currency Futures Assume that one year ago, the spot rate of the British pound was $1.70, and the one-year futures contract of the British pound exhibited a discount of 6 percent. At that time, you sold futures contracts on pounds, representing a total of £1,000,000. From one year ago to today, the pound’s value depreciated against the dollar by 4 percent. Determine the total dollar amount of your profit or loss from your futures contract.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 5, Problem 41QA
Textbook Problem

Speculating with Currency Futures Assume that one year ago, the spot rate of the British pound was $1.70, and the one-year futures contract of the British pound exhibited a discount of 6 percent. At that time, you sold futures contracts on pounds, representing a total of £1,000,000. From one year ago to today, the pound’s value depreciated against the dollar by 4 percent. Determine the total dollar amount of your profit or loss from your futures contract.

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