i keep getting confused when to sell and when to buy. say i am a british investor with mexican port. i want to sell my peso for pound “peso futures” (in that case i sell) or “pound futures” (then i buy) bec in the mocks … and it just said British pound- mex peso future rate is X (GBP/peso) … what does that mean. what kind of future is that.
if you are a british investor, you want to hedge against the MXN depreciating. if the rates are given as GBP / MXN, you lose when the ratio goes down (less GBP for 1 MXN). therefore, you would want to short the GBP/MXN rate so when it goes down, you forward pays off.
sorry not clear. can we generalise and say we are transacting futures of currency in the denominator. Eg: Gbp / MEx peso. so we focus on peso. and as we have peso. we sell the futures
I thought of this as other futures. If I say soy bean futures for lets say $45 a bushel , I won’t be confused whether I will short or long soy bean bushels or $45. Just like the same way, if it says Gbp/Mex Peso, I think of future as Mex Peso for lets say 0.5 Gbp, I would know I can buy or sell Mex Peso for 0.5 Gbp. Rest is to decide whether I am Mexican or British. I decide on that according to the question.
bips, sometimes but not always. they could give you the FC/DC rate and you’d have to switch it up yourself. it depends on the question. just remember that the currency that you want to hedge should be in the denominator and if you want to protect it, short it. (cuz you are a natural long in the currency already).
thank you both. i like your method Hiya - its simple enough to remember.
You can say both. You can enter into a forward to Sell Pesos at GBP/Pesos or you can enter into a forward contract to BUY Pounds at Pesos/GBP…they are both saying the same thing.