QUESTION $6$

Assume ABC expects to receive $20,000,000$ in $90$ days. A dealer provides a quote of $$\frac{0\mathrm{.}875}{}$ for a currency forward contract to expire in $90$ days. Suppose

that at the end of $90$ days, the underlying currency's exchange rate is $$\frac{0\mathrm{.}90}{}.$ Assume that settlement is in cash.

At expiration, what is ABC's payoff? $[$Hint: is this a Long, or a Short? Think about the actions by the long vs short in the context of foreign currencies. The long

pays... gets...; the short pays... gets....$]$