When the underlying exposure is denominated in a different currency from the futures contract, which exchange rate should be used to calculate the number of contracts – the current futures price or the lock-in rate?
The recently updated ACCA technical article, Foreign Currency Futures – Step by Step (Norris Co), uses the current futures price to calculate the number of contracts. However, it subsequently calculates the expected net cost by directly applying the lock-in rate to the entire exposure, without using the actual number of contracts.
On the other hand, past examination questions, such as Gogarth Co (March/June 2021) and Mahoney Co (March/June 2024), appear to use the lock-in rate to calculate the expected receipt, which is then used to determine the number of contracts.
Could someone please clarify whether these are alternative acceptable approaches, and which method candidates should follow in the AFM examination?