标题: Which exchange rate to use? Schweser B4 pg 115 example [打印本页] 作者: Iginla2010 时间: 2013-5-4 09:38 标题: Which exchange rate to use? Schweser B4 pg 115 example
hi,
its a long example. the gist is
“U.S. investor have 1m euros to invest. the current spot rate is $1.2888/euro. Investor then hedges the principal of 1m euros by selling 1m in euro futures at $1.2891/euro.
time passes and its time to lift the hedge. Current spot exchange rate is 1.2760/euro and futures exchangerate is 1.2763/euro.”
in the book, the examples uses the rate of 1.2891/euro (for the initial selling of futures) and 1.2763/euro for the subsequent covering. my question is…can the investor use the spot rate of 1.2760 instead to cover the short future? using another future will lengthen the time of translating back to USD, no?
thanks. cant get my head around this…作者: towardsutopia21 时间: 2013-5-4 09:39
is it just a case of matching futures with futures and spot with spot? in the example, if the investor decided not to hedge, the calculation is doen with spot rate at the initial and at the end of the investment period作者: noel 时间: 2013-5-4 09:42
I think you are confusing terms. Futures price is the price of a contract traded on a futures exchange , while spot is the price prevalent on spot market ( usually brokered by big banks ).
The futures price will converge close to the spot at expiration and probably at no other time . If the vignette doesn’t tell you that hedge is lifted at expiration of futures contract ( or even if it did , but listed the futures price seperately ) , do NOT calculate the P&L on the Futures hedge using the spot exchange rate .
Use Futures price for sell and for lift also.
Lifting the hedge means closing out your Futures position so you buy equivalent number of futures contracts to offset your short position . The price of the futures contract is relevant and not the spot price
