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Chapter 10

6.3 Futures hedging calculations

1 Now – set up the hedge

– Buy or sell futures? Look at the currency of the contract (‘CC’)

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

– Which expiry date? First contract to expire after transaction date

2 Contact the exchange and pay the initial margin.

3 Future transaction date – financial result is the total of:

– the value of the transaction using the spot rate on the transaction

date, adjusted for:

 profit or loss in the futures market (found by closing out the
futures contracts).

Illustrations and further practice

Now try TYU 3 in Chapter 10

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