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Hedging Uncertain EUR Receipts with Currency Futures

Article Quant Q&A · Author: Sebastián Berko
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Summary

The document poses a currency risk management exercise for a Czech company with a euro payable due at month end and an expected euro receipt halfway through the month whose arrival is uncertain. It asks how to hedge the exposure using futures, calculate the hedge gain or loss, and adjust contract counts using delta futures.

The data include spot and futures quotes at the start and on the date the receipt arrives, as well as a contract size. However, the document supplies no worked solution, futures position directions, delta calculation, or resulting profit and loss. It therefore frames a useful hedging problem but leaves the method and answer for the reader to derive. The scenario also specifies that the expected payment is received, so it does not demonstrate how the hedge should change if that receipt fails to arrive.

Key ideas

  • A firm with a foreign currency payable can face an offsetting exposure from a planned receipt in the same currency.
  • The receipt's uncertain timing or arrival affects how much exposure should be hedged.
  • The exercise asks for futures positions and a delta-based adjustment to contract count.
  • No hedge calculation or gain and loss result is provided.

Tags

FuturesForexRisk managementPosition sizing
Full text
# How do you hedge with delta futures if payment is unsure?


# How do you hedge with delta futures if payment is unsure?












A Czech company has a payable of 1,5 mil EUR that has got a settlement at the end of the current month and at the same time it is expecting a payment of 1,5 mil EUR at the half of the current month however the payment is not sure. Utilising the Futures market, hedge the company´s position(s), calculate a gain/loss from the hedging and alter the number of needed lots using the delta futures if you have been given the following data:

• current SR (EUR/100CZK) 6,000

• current FP (EUR/100CZK) 5,700

• 1 lot = 100 000 EUR

• the expected payment has been received on the 20th of the current month

• on the 20th – SR (EUR/100CZK) 5,500

• on the 20th – FP (EUR/100CZK) 5,100

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.