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Chapter 12

7.3 Futures hedging calculations

1. Now – set up the hedge

 Buy or sell futures? Look at the currency of the contract

 Which expiry date? First contract to expire after future transaction

 How many contracts? Look at contract size. May need to round. May
need to convert currencies to match size and transaction

2. Contact the exchange and pay the initial margin.

3. Future transaction date – close out the futures position.

 Buy or sell? e.g. if originally contracted to sell, then close by buying

 Calculate gain or loss May need to convert between currencies using
the spot on the transaction date

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