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Sir,
if I am in UK and I have a US debtor who is going to pay me in 4m time:
do I buy pound futures? (e.g. obligation to buy pounds at specific rate)
or
do I sell $ futures? (e.g. obligation to sell $ that I am going to receive from debtor at pre-determined rate)
Either 🙂
It depends on what futures are available.However you will appreciate from the free lectures that the way futures deals work means that you won’t actually buy pounds or sell dollars at the specific rate. The transaction itself is converted at whatever the spot rate happens to be in 4 months time. The futures make a compensating profit or loss because the futures deal is closed off in 4 months time (if you bought futures then you sell them in 4 months, if you sold futures then you buy them in 4 months). All this is explained – with examples – in the lectures.
Also appreciate that although you are expected to know how futures work for Paper F9, you cannot be asked for calculations on them – calculations are not asked until Paper P4.
Thank you for your response, the funny thing is that I passed F9 with 78 and still can’t get my head around some of the trivial calculations. I am currently preparing for P4, so decided to post this in F9 rather than P4 not to embarrass myself too much 🙂 And I did watch lectures 3-4 times, some of the things are still blurry 🙂 But I did notice that futures rates in exam papers are quoted on their own, there are no two rates quoted as say for spot rates, where buy and sell rates are presented. Funny.
Have you watched the P4 lectures on this, because in those lectures I do work through full calculation examples.
Only one rate is quoted for futures, and this is the rate used whether you are buying or selling the futures. Appreciate that they are derivatives in that although the price will move up and down as the spot rates move up and down (because it is a very efficient market), they are not directly related and the price of futures is determined by the supply and demand for the futures.
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