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Hi John
I’ve seen in some past papers / practice questions that they calculate the gain or loss in currency futures even when you calculate the lock in rate. So I was wondering if I calculated and included the loss on futures (0.0006 x 185 x 125,000 = 13,875) would that be wrong? If so why?
Thank you and sorry if obvious!
What you write is not true.
If the question gives you either the spot rate on the date of the transaction or the futures price on the date of the transaction, then we can calculate the ‘missing’ one. Then we can convert the transaction at spot and also calculate the gain or loss on the futures.
More commonly these days exam questions do not give the spot rate or the futures price on the date of the transaction (as is the case in Lirio) and in that case we calculate the lock-in rate and use that. The lock-in rate gives the net effect of converting at spot together with the gain or loss on the futures.
Have you watched my free lectures on foreign exchange risk management where I explain this?
Thanks John that helps. I have seen your lectures before but I’ll watch again just to recap. Sorry I got it wrong!
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