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Answer: Gain of USD $20,000
For a **short forward** on euros, the investor agrees to **sell euros at $1.40 per euro**. At expiry, the market exchange rate is **$1.20 per euro**, so the investor benefits because the euros can effectively be sold above market. \[ \text{Gain per euro} = 1.40 - 1.20 = 0.20\ \text{USD} \] \[ \text{Total gain} = 0.20 \times 100{,}000 = 20{,}000\ \text{USD} \] **Correct answer: C. Gain of USD $20,000**
Author: Manit Arora
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Question 138.1: An investor enters into a short forward contract to sell 100,000 Euros for US dollars at an exchange rate of $1.40 US dollars per Euro. How much does the investor gain or lose if the exchange rate at the end of the contract is $1.20?
A
Loss of USD $20,000
B
Loss of EUR €20,000
C
Gain of USD $20,000
D
Gain of EUR €20,000
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