A foreign currency long hedge with a $/¥ futures contract will be a foreign currency short hedge with a ¥/$ futures contract.

Question

Quizplus · Accepted Answer

A foreign currency long hedge with a $/¥ futures contract involves buying a $/¥ futures contract to protect against currency risk from a potential weakening of the yen. This is equivalent to selling yen and buying dollars. On the other hand, a foreign currency short hedge with a ¥/$ futures contract involves selling a ¥/$ futures contract, which is equivalent to selling dollars and buying yen. Therefore, the two hedges are essentially opposite of each other, and a long hedge with a $/¥ futures contract will be a short hedge with a ¥/$ futures contract.

A Foreign Currency Long Hedge with a $/¥ Futures Contract