R41 Managing the risk of foreign currency currency

cjs238

Hi,

CFAI Book4 P.377 Example 8

Royal Teck(UK company) is obligated to pay $1.5 million to retirees.
To hedge the currency risk, Royal Teck would need to go long a forward contract on the dollar.

Sorry for my basic question..
Is it possible to answer like this "Royal Teck would need to go SHORT a forward contract on the POUNDS" ?

Thanks in advance!

mp3bu

Both are synonymous , but since the currency at home is UK Pounds , hedging using a pound based contract ( i.e. a forward contract on the dollar) sounds more intuitive for what they're trying to do

Unforseen

Many thanks, janakisri !

infinitybenzo

Can I say "Long a currency forward" instead of " Long a forward contract on the foreign currency"?

canadiananalyst

deriv108 Wrote:
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> Can I say "Long a currency forward" instead of "
> Long a forward contract on the foreign currency"?

You can say what you like. It is the other party which needs to understand

liangfeng

Got it.