Question

Here are direct spot and forward markets quotes for MXN over three points in time: now (1/1/XX), one month later (2/1/XX), three months later (4/1/XX), and six months later (7/1/XX).

1/1/XX 2/1/XX 4/1/XX 7/1/XX
MXN Spot 0.0891 0.0949 0.0900 0.0955
1 Month Forward 0.0904 0.0963 0.0914 0.0969
3 Month Forward 0.0918 0.0977 0.0928 0.0984
6 Month Forward 0.0932 0.0992 0.0942 0.0999

Based on your knowledge of the MXN quotes on all three periods, on 1/1/XX : ___________

a. You should be short on the 6 month forward contract.
b. You should be long on the 1 Month Forward contract.
c. You should be long on the 3 month forward contract.

Answer 1

a. You should be short on the 6 month forward contract.

Step-by-step explanation:

Short forward contract is that when a trader agrees to sell the asset on the same date and for the same price. Long forward contract is one in which trader agrees to buy underlying asset on a specified date at a specified price in future.