A trader enters a short three-month non-deliverable forward on 2,000,000 CNY at CNY/USD 6.1155.
Based on that phase, does that mean the trader is on a contract to “sell” 327,037 USD in exchange for $2M CNY, or the opposite?
How do you know the short is associated to CNY or USD?
If you enter into a short 3-month forward on, say, chicken livers (rumaki), are you going to sell rumaki or the opposite?
Thats what i thought, selling CNY and buying USD.
but the full question:
A trader enters a short three-month non-deliverable forward on 2,000,000 CNY at CNY/USD 6.1155. At the end of the period, the spot exchange rate is USD/CNY 0.1612. The trader’s gain or loss is closest to: USD 4,600 loss. USD 4,700 loss. USD 4,650 gain.
I get a loss of 4637, not a gain.
You sell $2M CNY for 327,037.85 USD, and the spot later is lower for a loss??
Nm I finally got it!
I take it that you bought CNY in the spot market, and delivered it against the forward.
(Well, in effect, as it’s a non-deliverable forward. You really only pretended to buy CNY in the spot market and deliver them against the forward; what you actually did was settle the whole thing in USD without touching CNY at all.)