Question

For a futures hedge, what do you do to get the proceeds with different spot rates and one set futures rate?

futures rate: 2.85

Spot rates: 1.20-1.40

Receivalbes: 62500

how do you get the different proceeds to graph the futures hedge? (proceeds or profit)

Answer 1

When are about to receive an asset in future, we go short on futures contract. If we are going to pay for an asset in future, we go long on futures contract.

In this question sice we have receiables of 62500, we will go short on futures contract.

Pay-off from short futures = 62500*(F - S)

Pay-off from receivable asset = 62500*S

Where S is the spot rate & F is the futures rate

Total pay-off = Pay-off from short futures + Pay-off from receivable asset

Fututres Rate	Spot rate	Pay-off from short futures	Payoff from receivables	Total pay-off
2.85	1.2	62500*(2.85-1.2) =103125	62500*1.2 =75000	103125+75000 =178125
2.85	1.3	96875	81250	178125
2.85	1.4	90625	87500	178125