From what I have read, it is that way in order to prevent default of the contracts. However, I do not get how this avoids a default. Like, what happens if you default?
Also, when talking about FX contracts, what decides whether you would like to close the exposure?
Example:
It is January, and you are expecting a payment of EUR 200 million at the end of September. You have payables in USD. You wish to hedge against FX risk. The nearest maturity date for a € futures contract is 13 December. The face value of one € futures contract is €100,000. The spot rate today is $0.90/EUR and the futures rate is $0.85/€.
Assume that the spot rate at the end of September turns out to be $0.95/€ and that a futures contract taken out at the end of September to expire on 13 December is quoted at $0.92/€. What is the total gain or loss earned by your company?
Submitted November 21, 2017 at 08:24AM by AdamJohansen http://ift.tt/2z9TnS2
