Question

Suppose that in Month-0, you instruct Bank XYZ to execute a trading strategy to earn an arbitrage
profit of $5,940. However, in Month-6, Bank XYZ delivers £4,621 to you. The staff at Bank XYZ states
that the £ amount they delivers to you is equivalent to the $ amount based on the 6-month forward
exchange rate ($1.285210/£). How would you respond to the bank’s statement?

Answer 1

The arbitrage profit was expected at month-6. Any exchange rate risk, lies with me as the Bank was instructed to execute  an arbitrage profit of $5,940. It was expected that I would $5,940 today.

Even if the £/$ was to be used for converting, the currency should had been converted at the current spot rate. However, the 6-month forward exchange rate was used to convert the receivables. This is absurd as the current exchange rate might be lead to higher receivables for me and hence unacceptable. The current spot exchange rate must have been used even if I had to receive payment in £.