Question Regarding Reading 40, Example 1, Page 295-Currency into, contract, position, question

jbaldyga

If one is short a forward on a notional of $1MM and the current forward rate is 1Euro/$. Few weeks later the Forward rate is 0.95Euro/$. How does this translate into a gain for the position that is short?
Isn’t the person who is short still liable for completing the contract at 1Euro/$?
I have not gone all of the example but that is the jist of my question.
Thanks in advance.

sabina

Thanks CPK.

simeezee

he has contracted to sell something to someone for 1 MM $.
a few weeks later - he can buy what he needs to sell from the spot market at 950000 MM Euro, sell it to the counterparty, and get back 1 MM Euro which is what the contract was for.
A Short position gains when the forward contract rate drops.