A qs says it is 15th october and a treasurer has identified the need to convert euros in to dollars to lay us supplker $12m on 20 nov . The treasurer has decided to use december euro futures contract to hedge with following details
Contract size €200000
Prices given im US$ PER EURO
TICK SIZE $0.0001 OR $20 CONtract
He opens a position on 15 october and closes it on 20 november spot an relevant future prices are
Spot futures price
15 october 1.3300 1.3350
20 november 1.3190 1.3240
How to calculate no of contracts here ?
As the transaction date is 20 nov so i should use futures price for december as u told in ur lecture 1 month after the transaction date but there is no future price for december given so which future price i should use ? In the answer of test your understanding they have used 1.3350 which is again for october so why they have used that please reply
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Futures
I also cannot understand what is tick size please explain and what does it tells us and how it is used in case of futures
15 october
Spot : 1.3300
Futures price : 1.3350
20 november
Spot : 1.3190
Futures price : 1.3240
i wrote it again to make it clear as it might not be clear above
6y ago#2I say in the lecture to use the Decembers futures price (because they will be using December futures) at the start of the deal.
The futures price as at the start of the deal (15 October) is 1.3350.
I do explain ticks in my free lectures, although you never actually need to use ticks in the exam (I never do!!).
One tick is the smallest change in the futures price, which is 0.0001.
The tick size is the gain or loss for a 1 tick movement on 1 contract.
So for every 0.0001 that the futures price changes, the gain or loss on each contract will be 200,000 x 0.0001 = $20
Again, I do explain this in my lectures.
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