A U.S. investor who holds a £2,000,000 investment wishes to hedge the portfolio against currency risk. The investor should: A) sell futures for £2,000,000 worth of U.S. dollars. B) buy futures for £2,000,000 worth of U.S. dollars. C) sell futures for $2,000,000 worth of British pounds. I chose B, but the answer is not… I am holding pounds, should i buy future on: short pounds and long usd?
You are long the GBP, you need to offset currency by being short the GBP (Answer A)
BTON04 Wrote: ------------------------------------------------------- > You are long the GBP, you need to offset currency > by being short the GBP (Answer A) Agree. I read A as ’ sell futures of £2,000,000 worth of U.S. dollars.’ it was ’ sell futures for £2,000,000 worth of U.S. dollars. ’ need a break…
you are holding pounds, so what is your risk? your risk is that the pound depreciates, so you want to short pounds (sell pound futures) to hedge that risk.
def A…you want to be short pounds in future that is deliver pounds and get usd… its easy to get caught up if u dont just focus on one side of the transaction either look at it from the point of USD or look at it from pounds