Question

The Euro is trading at near record lows relative to the US Dollar. Imagine that you entered into a forward contract in February 2023 to sell 10,000 Euros at the forward rate equivalent to the spot rate then. What was the exchange rate specified in the forward contract? Are you better or worse off today having entered this forward contract?

Answer 1

The exchange rate specified in the forward contract would be equivalent to the spot rate in February 2023. Whether you are better or worse off today depends on the current spot rate and the exchange rate specified in the contract.

Step-by-step explanation:

The exchange rate specified in the forward contract would be equivalent to the spot rate in February 2023. Since the question does not provide specific information on the spot rate at that time, we cannot determine the exact exchange rate specified in the contract.

As for whether you are better or worse off today having entered the forward contract, it depends on the current spot rate and the exchange rate specified in the contract. If the current spot rate is higher than the forward rate specified in the contract, you would be better off, as you can sell your Euros at a higher exchange rate. If the current spot rate is lower than the forward rate, you would be worse off, as you would have been able to sell your Euros at a higher exchange rate without the contract.