I’ve seen several variations from textbook and answers to practice test exams that my head is spinning. One of them (explain use of foreign exchange futures to hedge currency exposure associated with principal value of foreign investment): Hedged return for British pound (in example) = [(Value of pesos x exchange rate at time t / value of pesos x exchange rate at initial) - 1] - [(Futures rate at time t - Futures rate at initial) / Spot rate]. If there are other formulas you believe to be equally important to memorize/know, feel free to share. thanks

The only formula you need is: R_hedged = R_unhedged - R_forward Your short the forwards so apply with care

you hold 100 euros spot 0.7 eur/usd forward 0.5 eur/usd you short 90 eur forwards. you current hold 100/0.7 = 142 dollars inf the future, rate is 0.3 eur/usd your forward payout is (1/0.5 - 1/0.3) * 90 - that is how much dollars you lost, since eur appreciated more = (2 - 3.33) * 90 = -120 you convert your eur position at spot 333.33 your net = 213 your return = 213/142 = 50% please correct me if am wrong