Question on Currency rate convention company, question, contract, receive

pimpineasy

So for Level III, the CFA uses only the direct quote as far as I've seen. I have a question on the convention used though...

Let's say you're a US company, with operations in the eurozone. You expect to receive 1,000,000 euros in 3 months. The current 3-month forward quote is 1.50 USD/EUR. If you want to fully hedge, is the convention that you would go long or short the 1.50 USD/EUR contract?

wake2000

short euros in the contract

Roflnadal

you only need to choose long or short the foreign currency no matter the quote method

jmh530

Just think of it more as do you want to buy currency or sell currency. If I have Yen and I am a US investor, I don't want Yen, I want to sell Yen for dollars. So I'll sell Yen contracts. Or I can buy U.S. contracts, which is the same thing because I am selling my yen and buying U.S. dollars.

bodhisattva

Abushey, I get what you're trying to ask.

I think I'll think of it as being offered 1.5 USD for 1 EUR. therefore, I'll go short on the contract. (selling 1 EUR for 1.5 USD)

though i may be wrong. I just hope they ask us in plain language which currency to short!