Currency futures

A currency futures hedge takes a position intended to gain when the underlying foreign-currency transaction loses. Determine whether the business needs to buy or sell the contract currency from the contract specification, not merely from the words 'importer' or 'exporter'. Contract sizes, expiry dates and quotation conventions can leave residual exposure. Closing the futures position produces a gain or loss that combines with the actual currency conversion. Basis risk and daily margin cash flows mean the hedge is not identical to a perfectly matched forward contract.