Question

A bank is short a futures contract on 1,000,000 Euro with F= $1.5 million maturing in one year. The value of this position may decline if:

		The Euro appreciates against the dollar
		The Euro depreciates against the dollar
		The bank faces zero risk because the futures prices is locked in

Answer 1

If bank is short on futures contract on Euro So, bank will be vulnerable to any of the appreciation of the Euro against the dollar because when the commercial bank in short on Euro will mean that it has a risk of loss when the euro starts to go up against the dollars and hence it will mean that when the euros will be going up against the dollars, then bank is going to lose on the position.

Appreciation of Dollars against Euro will not be affecting the bank on the negative side.

Correct Answer will be option (A) if Euro appreciate against the dollars.