Final answer:
Yes, a trader will engage in a FX swap to roll forward the contract.
Step-by-step explanation:
Yes, a trader will engage in a FX swap to roll forward the contract.
In the given scenario, the trader has sold 100 million euros with settlement 95 days from today at a forward rate of 1.2500 USD/EUR. To roll forward the contract, the trader will enter into an FX swap.
An FX swap involves simultaneously selling and buying a specific amount of one currency for another, with two different value dates. The first leg of the swap involves selling one currency and buying another for immediate delivery, while the second leg involves the reverse transaction at a pre-agreed forward rate. This allows the trader to continue their exposure in the currency market without having to actually deliver or receive the currency in question.