Question: Trade A enters into futures contracts to buy 1 mil…
Trade A enters into futures contracts to buy 1 million euros for 1.1 million dollars in three months. Trader B enters in a forward contract to do the same thing. The exchange rate (dollars per euro) declines sharply during the first two months and then increases for the third month to close a 1.1300. Ignoring daily settlement, what is the total profit of each trader? When the impact of daily settlement is taken into account, which trade done better?
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