Question

Question 2

Based on the rates given below, determine which currency strengthened and which currency weakened, whether the currency closed up or down and your profit or loss based on the position you took at the open.

Example: Sterling opens at 1.2890 and closes at 1.2750 and purchase of 1 million GBP at the open. The sterling closed down for the day, therefore the sterling weakened and the (US) dollar strengthened. The profit and loss of the open position will be 140 pips loss 1,000,000 * (1.2750-1.2890) = - 14,000 USD (currency and amount) Base currency gain/loss is 1,000,000 *((1.2750/1.2890) - 1) = - 10,861.13 GBP

a. Dollar-yen opens at 110.25 and closes at 113.50 and sold 1 million USD against JPY at the open.

b. EUR opens at 1.1960 and closes at 1.1750, and purchase of 500,000 euro at the open.

Answer 1

a) Given that the Yen/ Dollar is 110.25 and closed at 113.50. That means the value of dollar appreciated as we need more yen to buy 1 dollar as per rate given . We sold 1 million USD for JPY that means we got a loss

Loss = 1,000,000 ( 113.50 - 110.25) = 325000 Yen is the loss

In Dollar the loss is 1,000,000 ( 113.50 - 110.25)/110.25 =2947.846

b) Given that the $/Euro is 1.1960 and at the end of the day it closed at 1.1750. That means the value the value of euro has fallen . We need to less dollar to buy euro at the end of the day. We brought euro at the beginning but at the end of the day it has fallen . That means we made a loss

Loss = 500,000(1.1960 - 1.1750) = 10500 Dollars

Loss in euro will be 500,000(1.1960 - 1.1750)/1.1960 = 8779.264 Euros