If you have entered into a currency futures hedge for the Japanese yen in connection with buying Japanese equipment and if the yen goes from 110 yen/$1 to 100 yen/$1, you will lose in the spot market but have an offsetting gain in the futures market.

Question

Quizplus · Accepted Answer

When the yen strengthens from 110 yen/$1 to 100 yen/$1, it means that you now need fewer yen to buy a dollar, indicating a loss if you have to convert dollars to yen in the spot market to buy the equipment. However, if you have a futures contract that locked in a rate closer to 110 yen/$1, you would gain on the futures contract because you have secured a rate that is more favorable than the current market rate of 100 yen/$1, offsetting the loss in the spot market.

If You Have Entered into a Currency Futures Hedge for the Japanese