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First off, thank you for your service, you guys are amazing.
I don’t quite understand how futures contracts are quoted.
If on the 1st of June, September futures ($/Pounds) are quoted at 1.5580 and Mr Smith buys a contract(not taking into account the size), does that mean that come end of September when the contract matures, Mr Smith will be able to convert his dollars into pounds at the rate of $1.5580 for every pound?
Thank you
No.
The transaction itself is converted at whatever the spot rate happens to be on the date of conversion.
On the same date the futures deal is ended and the futures are sold at whatever the futures price is on that date.
The idea is that the profit or loss on the futures cancels out the gain or loss due to the change in the spot rate and so the risk is removed.
Please do watch my free lectures on this where I explain in detail exactly how this all works.
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