Specific question on Practice Exam #2 (spoiler)

In the Forward/Futures problem set, how do we know that Speckley is short the Euro contract? Why can’t he be long the position? For the forward on the stock, we are told that he expects the stock price to increase (thus he goes long). But unless I’m missing something (which I’m sure I am), there is nothing to indicate that he took a short postion in the Euro contract- except the solution. Any help is much appreciated!

I got that question wrong as well. I am sure it was mentioned somewhere that he was short, but it’s not so easy to pick out the info when you have to keep scrolling.

It doesn’t specifically say that he is short. He is going to receive 10 Million Euros in 180 days, after that he has to hold the funds in escrow for another 180 days. His goal is to lock into the Euro to USD exchange rate that he will get when he converts to USD in 360 days. He is short the Euro contract because he is locking into the rate that he can SELL Euros at in 360 days.

Thanks McLeod, that makes sense. This problem set seemed trickier than it really is because they threw so much information at you. I miss Level 1 style questions.

Yeah, L1 was nice because they lay it all out for you. It seems like there’s a LOT that can go wrong with any given problem on L2…