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Hi. Please is there a rule of thumb to apply in the exam to decide when to buy or sell currency futures?
For example, do we sell to hedge a foreign payment and buy to hedge a foreign receipt?
Thanks
Richard
It depends what currency the futures are quoted in (i.e. the currency attached to the contract size).
If, for example, the contact size in quoted in $’s, and you are in a country not using $’s. The if the transaction involves buying $’s (because you are needing to pay $’s to someone) the you will buy futures (and sell them later).
If, for the same example, the transaction will involve selling $’s (because you will be receiving $’s from someone) then you will sell futures (and buy back later).My free lectures on this do explain in detail what to do (and why 🙂 )
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