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  3. consider the following forward contracts: contract

Consider the following forward contracts: Contract A: Long AUD against USD, notional amount AUD 10,000,...

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Accounting

Consider the following forward contracts: Contract A: Long AUD against USD, notional amount AUD 10,000, forward exchange rate 0.80 USD per AUD. Contract B: Short AUD against USD, notional amount AUD 50,000, forward exchange rate 0.75 USD per AUD. Suppose both contracts are maturing today, and the spot exchange rate is 0.70 USD per AUD. Please calculate the profit or loss (P&L) on each contract. P&L for Contract A - -1000, or 1000 or none P&L for Contract B - -2500, 2500 or none

Now suppose you can enter either Contract A or Contract B today with a three-month maturity. In three months, you believe the spot exchange rate will be 0.82 USD per AUD. Which contract do you prefer? A OR B

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