I would like to check if there is any mis understanding in my thought with regard to curreny hedging. Please give me advice if there is any with 2 questions. Q 1. (condition) Implemented a short future at U$ 1.2888 / EUR on some date & later (ex. 12month) the future price became U$ 1.2760 / EUR seems like local curreny depreciated (explanation) - currency future short here, we have to give 1 EUR at expiration to the counterparty. - When we implemented short at U$ 1.2888 / EUR, It s a contract that we have to prepare U$ 1.2888 and change it to 1 EUR by the contract, then give 1 EUR to the counterparty - Now the price changed (U$1.2760/ EUR) we have to prepare U$ 1.2760 to change to 1 EUR, then we give 1 EUR to the counterparty. - So we earn profit (1.2888 - 1.2760 as U$) Q2. (condition) There is a contract (international transaction) to pay 10 EUR to European company. currently U$ 0.9 / EUR. Later became U$ 0.8 / EUR (local currency depreciated) right before giving the 10 EUR to counterparty. (explanation) We first expected to need U$ 9 but now only need U$ 8 so the situation got better. so we earn a profit (additional question) How in both of the local currency depreciation condition, 1 with future & 1 with real currency, we could earn? It is because the future was short, not long? But in the 2nd situation the Euro was the currency that we have to pay, not receiving. or because it is the result regardless of future or spot?
It is because the future was short.