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Hi, I am struggling with FX hedging and its less than 3 weeks to exam.
Can you please tell me the rule behind when to buy and when to sell futures?
Example 9 in study text we are RECEIVING foreign currency: if exchange rate goes up, we get less home currency (£). If exchange rate goes down we get more. Buy futures and if exchange rate goes we, we sell the futures for more.
ACCA past question Washi Co.
We are RECEIVING foreign currency but we are SELLING futures.
Is there no one single rule i.e if receiving FX we BUY futures, and if paying FX we SELL futures?
Please can you clarify this.
Many thanks,
I don’t know which Study Text you are referring to. If you are referring to our lecture notes then have you not watched the free lecture working through the notes and working through the examples? It is pointless using the notes without watching the lectures because they are only lecture notes and it is in the lectures that I explain and expand on the notes.
I make it very clear in the lectures (and it is also stated in the lecture notes) that if the transaction involves buying the contract currency then we buy futures, whereas if the transaction involves selling the contract currency then we sell futures.
In the case of Washi, the contract currency is Euros. They are receiving Euros and therefore they will need to sell Euros in order to convert to Yen. Since the transition involves selling Euros, they will sell futures.
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