I’m stumped on the language and wondered if someone here may have some rules of thumb that helped you get this through your head.
Economics section, specifically 629-631 in Volume 1 of the CFAI curriculum. The following statements are made in a couple of places on those pages
> “…bought GBP for delivery against the AUD…” - currency quoted as AUD/GBP
> “…sell the CHF six month forward against the GBP…” - Currency quoted as CHF/GBP
> “…selling the NZD 10 million forward against the USD…” - currency quoted as USD/NZD
I’ve got myself thoroughly confused about what exactly this phrase means. When I sell one currency against another currency…honestly I can’t even type if out I’ve got myself so confused.
Any thoughts on how to get used to this or how to understand it better in terms of the price/base currency?
The first thing to realize is that how the exchange rate is quoted doesn’t matter. All that matters is which currency you’re paying and which you’re receiving. Paying is the same as selling; receiving is the same as buying.
This means that you entered into a forward (or futures) contract to pay (sell) AUD and receive (buy) GBP. If the quote were GBP/AUD, it would mean the same thing: paying (selling) AUD and receiving (buying) GBP in the future.
This means that you entered into a forward (or futures) contract to pay (sell) CHF and receive (buy) GBP. If the quote were GBP/CHF, it would mean the same thing: paying (selling) CHF and receiving (buying) GBP in the future.
This means that you entered into a forward (or futures) contract to pay (sell) NZD and receive (buy) USD. If the quote were NZD/USD, it would mean the same thing: paying (selling) NZD and receiving (buying) USD in the future.