AFM 371 Lecture Notes - Foreign Exchange Spot, Foreign Exchange Risk, Forward Market

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM 371
• Professor: Neil Brisley

Document Summary

Forwards or options or the money market (borrowing & lending). Friday, mid-term on classes 10-16: different currencies have different interest rates, generally high inflation currencies have higher interest rates. 1: so here, the different interest rates refer to different currencies. Short selling" ( shorting", going short") dell stock. Mr. vanguard, (paying a small commission of sh. 20, but let"s ignore that it"s small) and agreeing to return the stock to mr. vanguard in 2 weeks" time. Mr. a immediately sells the borrowed stock to mrs. z for . Show the profit/loss to mr. a"s short selling strategy if the dell stock price in two weeks" time turns out to be: i) =gain : , =0, v) =lose . You can think of this as a forward contract because, if you think prices will go down, you can go buy a stock so that you"re covered. When you sell short, you"re liability is the share, because you owe it to that person.