In Reading 38 Question 6B CFAI It state that ABCorp will have to pay A$175mil in 1 month. To hedge the risk that AUD may strenthen against USD, it should enter into a fwd contract to purchase AUD 1 month from now. Because it is effectively short the AUD, ABCorp takes a long position in the forward market. Thus enters into 1 month long fwd contract to purcahse A$175 mil. Can someone help to understand the concept? Which forward market is actually “longing”? If it’s long, why it can be considered as shorting the AUD? Thanks!
If you need to pay then you are short the currency. If you are going to receive then you are long the currency. In this case, ABCorp has to pay A$175 million in 1 month. So, it’s short the currency. In order to hedge the risk it needs to go long. Hope that’s clear.