On June 1, 2000, the fly has depreciated to waf 0.90, but the six-month interest rates have not changed. In early 2001, the fly is back at par. Compute the gain or loss (and the cumulative gain or loss) on two consecutive 180-day forward sales (the first one is signed on Jan. 1, 2000), when you start with a fly 500,000 forward sale. First do the computations without increasing the size of the forward contract. Then verify how the results are affected if you do increase the contract size, at the roll-over date, by a factor 1 + r∗T1,T2-that is, from fly 500,000 to fly 512,500.

Use the following time-0 data for the fictitious currency, the Walloon Franc (waf) and the Flemish Yen (fly), on Jan. 1, 2000. The spot exchange rate is 1 waf/fly.

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Interest rates FLY 5% 5% Swap rate 180 days 360 days WAF WAF/FLY 10.125% 0.025 10.250% 0.050