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Thank you for your efficient response.
As I am listening to the lecture of the Foreign Exchange risk management I am wondering what is the advantage of making the “phone call” to buy the futures. To me it seems the same as buying and selling at the regular spot rate for the date when the money is needed. Because in both cases the risk is not being eliminated.Please can you clarify the benefit of how this minimises the risk?
Thank you!!
If money is needed on a future date, then there is risk in that the spot rate may be different on the future date than it is now.
However just as the spot rate may have changed, so too the futures price will have changed.
So by dealing in futures (which on their own are risky as well), the gain or loss on the futures will cancel out the gain or loss on the transaction due to the change in the spot rate.
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