Hi Sir
Could I please check that I have properly understood your lecture explanation relating to futures?
If the exchange rate is $/£ 1.80 and there's a receipt of $100,000 due in 3 months time, but the UK exporter fears that the $ exchange rate will weaken, could they undertake either of the next two futures positions:
1) Sell futures in US Dollars futures now, and then buy US Dollars futures on or before the settlement date and so if the exchange rate of US Dollar weakened, the futures prices would fall, creating a profit that can compensate the loss on the conversion of the US Dollars when the receipt is due
2) Buy futures in Pounds now, and the sell those futures on or before the settlement date to profit from the decrease in buying price relative to the selling price...
The reason I ask sir, is because, in the Pilot paper ACCA released, the answer scheme explained that the UK exporter would buy its own domestic currency (pound) futures in light of its fear that the foreign currency would weaken relative to its current spot rate.
Thank you,
Ali
Ask the Tutor ACCA FM
Selling Foreign Currency Futures VS Buying Domestic Currency Futures
Yes - they could do either of your two suggestions (depending obviously on what currencies there are futures available).
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