2008 AM Q11 A

Is saying " Sell dollar and EUR futures" same as saying “Buy JPY/USD and JPY/EUR futures”

Also, is there any particular convention?

Sell dollar futures is the same as see JPY/USD futures

sell eur futures is the same as sell JPY/EUR futures

sell JPY/USD futures would mean selling JPY and buying USD, but here home currency is JPY and we need to hedge returns in JPY. Than we should be buying a future contract to buy JPY and sell USD in future. am I missing something?

Yes , it is the same thing . There is absolutely no convention in FX forwards , but buying nemuerator is exact;y same as selling denominator. These fx pairs can be set up at will witha bank and most of them are available to trade online on a currency trading platform rounfd the clock , around the world.

On the other hand for FX futures they are exchange specific contracts . For example CME trades almost all the dominant FX futtures around the world. Obviously CME being US based all the contracts are USD in their numerator . namely the contract would read USD per Aussies dollar or USD per Euro.

So since it is a specific contract ,you can only buy or sell this contract on the exchane , and not its counterpart denominator quoted contract . i.e. CME would not buy from or sell to you a Aussie denominated contract namely Aussie dollars per USD .

However conceptually it still doesn’t matter as the flip relationship still holds . Buying a USD denominated Aussie dollar futures contract on the CME is exactly the same as selling an Aussie dollar denominated USD futures contract and the underlying price would be 1/x times ( except for the “bigpoint” value whch is the amount of futures value movement for a 1 point ( 1 percent ) move in the actual fx rate , since there is no couterpart contract you won’t even see that in practice )

thanks Jana for clairfying.

so basically, as we are we are dealing with Futures in this question, selling dollar and euro futures, means selling dollar and EURO forward and buying JPY forward, right ?

yes , the exchange for the Futures contract is a Japanese one so all the contracts are JPY denominated . If you sell USD futures , the you’re becoming the short i.e. you will deliver USD upon maturity and receive JPY.

Similarly if you are sell the Euro Futures , then yu are short Euro fowrad , i,e, you will deliver Euro upon expiry and receive JPY .