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Chapter 24, Part I. Market Sentiment and COT report Page 7

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 24, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    1 continued. So, he could buy USD/JPY futures. If yen will fall – he will get additional surplus on futures and will get necessary amount of revenues by converting profit from futures into USD. If JPY will rise, then he doesn’t care – although he will fix loss on futures position – it will be compensated by revenues at higher USD/JPY rate and it will get necessary revenue in USD anyway.

    2. Imagine that Cisco has a contract on purchase some machines with some EU supplier. But this contract is long-term and Cisco has to pay for the machines in EUR by equal transfers during the year. The cost of the contract in EUR is fixed. In the beginning of the year, Cisco assesses investment, say, in $10mln at 1.20 EUR/USD rate. If EUR will rise during the year, Cisco will have to overpay for that machines and it does not want to do that. Cisco could hedge currency risk with EUR/USD futures and buy it. Acting like that, Cisco will compensate EUR growth and it’s overpaying by profit on futures. If EUR will fall to USD, then Cisco will get loss on futures, but it will pay less in USD since contract price is fixed in EUR. As a result it will meet expenses precisely how it has planned them.

    3. The last example with some US Bank, that loan from Swiss Bank in CHF, say for couple of years at some fix percent rate. I allow you to investigate that problem by yourself, just to not solve for you any task. Just think, what will happen if CHF will rise or fall and how can the US Bank hedge this risk.
    #1 Sive Morten, Dec 24, 2013
    Lasted edited by : Oct 1, 2016
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