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When we calculate the number of contracts in Currency Futures, on what value do we convert the amount? The Current Futures price? or the Future’s price on the transaction date? Could you please provide a reason for the same? As in Kaplan Study text, they have taken the Current Future Price, whereas in the question BOULLAIN, they have taken the Future value on transaction date.
This is really confusing.Also, the unhedged amount in thus question’s solution is calculated by
Total Amt – (No of contracts * Contract Size * FUTURE’S PRICE ON TRANSACTION DATE)
Shouldn’t it be future’s price on the starting date?There is an argument for using either, but more sensible is to use the current futures price (because although (depending on the information available) we may be able to estimate the futures price on the date of the transaction, it would only ever just be an estimate).
However the examiner accepts either, even if it does mean a different number of contracts (which generally speaking is not the case anyway).
Thanks for the response, it helped a lot!
Could you please respond to the other question as well? I wrote it in a reply to the first one.Sorry 🙁
The two things go together and if you are using the current futures price to decide on the number of contracts (as I think better), then you should also use the current futures price in deciding on the unhedged amount (which you would then use the forward rate on, if one is given in the question).
Yes, thanks a lot Mr. Moffat!
I’ve been scratching my head over this doubt since yesterday.
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