futures contract

Have you watched the free lecture on futures?
In the lecture I do explain how they work and I go through an example.

(Although do appreciate that you cannot be asked calculations in Paper F9 – you just need to be able to explain the idea.)

As far as futures are concerned, we buy and sell these just like people buy and sell shares. If the price is higher when you sell, then there is a profit. If the price is lower when you sell, then you make a loss.

Just as with shares, you can buy today and sell them later.
Alternatively, you can sell today (even if you do not own any) but you must buy later.

Futures are traded just like shares are on an exchange.

Financial managers do not deal in futures simply to try and make money. They deal in order to ‘cancel’ the risk of the underlying transaction (e.g. the risk of exchange rate movements if we are going to pay or receive foreign currency on a future date.)
They deal in futures in such a way as to make sure that if we lose money on the transaction, then we make a profit on the futures (to compensate). If we gain on the transaction then we make a loss on the futures.

Either way, we are using one risk to cancel the other risk.

Remember again – you cannot be asked any numbers on this at F9. The most that you can be asked is a brief explanation of the idea (and even just what I have typed above would be more than enough).

The numbers that you must learn are forward rates and money market hedging.