So buying a dollar futures contract JPY/USD means what ?? I thought I knew the up the bid down the ask rule and I am now totally confused
I would like to know this too. I think it means that you are long the dollar (REC) and you are short the Yen (Pay). You would do this if you were a US investor and had a YEN denominated investment.
Ok so if I am a Japanese investor with a US investment, I would short this contract. You are right. How do you remember this … how come “up the bid” rule doesn’t work anymore? Like sell USD to buy Yen --> doesn’t up the bid mean that
I don’t use that at all. It is given that he is buying a $ futures contract so he wants to REC dollars. If he wanted to REC Yen he could short the dollars contract, which I believe is equivalent to saying he is long the Yen futures contract. Have you seen examples where this wording isn’t given?
I don’t want to tell you where and give too much details since I am sure you are going to take the mock test and don’t want to ruin it for you or anyone here. So just trying to clear my concepts. Dollar futures contract = REC dollars contract when long and REC yen when short But the JPY/USD – just the way the numerator and denominator are … look confusing to me…I need to unlearn the way I read the equation any tips ?
We will fall easy prey to CFAI if we misinterpret the currency quotes, since I am sure they will include both possibilities among the three answer choices.
if you are long a JPY/USD contract means that you are long JPY and short USD the way to look at this is different than the quotations from the economics JPY/USD means the quote of jpy in us dollar terms. that is favorable for the long side if the dollar decreases relative to jpy - for example from 100 to 101.
Are you sure about that pop?
not very which ss is this?
I just assume it means its a quote to buy something called a “JPY” paying USD. Just like any other future - its just that the thing being bought is quote on the top, and what you are paying is quoted on the bottom. Hopefully I haven’t got it the wrong way around
serf_dude Wrote: ------------------------------------------------------- > I just assume it means its a quote to buy > something called a “JPY” paying USD. Just like any > other future - its just that the thing being > bought is quote on the top, and what you are > paying is quoted on the bottom. > > Hopefully I haven’t got it the wrong way around this is right on a standalone basis … it is exactly what the the up the bid rule states in LII
if you are long a JPY/USD contract means that you are long JPY and short USD florinpop the above is incorrect, my understanding was the same too Well may be the “dollar futures contract” ahead of that equation JPY/USD means different to what a standalone equation means This is soo confusing and I have spent soo much time to just get more confused
Here is what I think heer… You are long a DOLLAR contract, but you don’t know in terms of what other currency so the quote has to be given. In this case the quote tell you the dollar you are long is in terms of Yen. So you have to PAY Yen to REC Dollars. Again this would apply to a US investor with a Yen holding and I would short the dollar (PAY dollars and REC Yen) if I was a Japanese investor with a US holding. Basically the underlying is determine by the type of contract - dollar future. Others may prove me wrong.
Unless it means you are potentially going to receive USD (long USD) as a transaction PRIOR to buying the contract, and hence want to exchange it for JPY (so you buy a long JPY, short USD contract)?
Yeah you both got it right … if you are going to receive USD and are a Yen based investor you will short USD contract I am giving up on the equation as the contract says dollar futures and by just reading that I should whether to short or long Thanks
guys guys guys…i struggled with this initially…and there is only one easy way to remember it… if you have a quote of 120 Yen/USD…what does that mean? You are paying 120 Yen to get 1 USD… the easiest way to remember it is to think of the currency in the denominator as just another asset (not another currency)… so it could be 120 Yen/donkeys 120 yen/kicks 120 yen/soccer balls… whatever…you are PAYING the numerator to GET one unit of the denominator… some of you guys had it the other way round earlier…i think… so If you are a Japanese investor with a US investment - you will be receiving the cash flows in US…you want to convert those to japanese… so if you are LONG the future JPY/USD you are PAYING yen to get USD…but you want to do the opposite … so you SHORT the future JPY/USD …so that you PAY USD to GET Yen i.e. so you can sell the US dollar (which you received from the investment) and get the Yen… hope I got all that in order…
basically…you are short or long on the currency in the denominator… so if you have the denominator cash flows coming in from your investment - you want to go short in the futures contract if you have the denominator cash flows going out - you want to go long in the futures contract
mumu that is very helpful. Thanks! Yes i had the other way round earlier, now it is very clear. hedging currecy rsik yay!!!