Identifier: C3T4L3 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Choose long or short currency futures from the cash obligation. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can choose long or short currency futures from the cash obligation; quantify date, quantity and conversion residuals; reconcile an invoice hedge with daily margin cash.

Prerequisite: C3T4L2; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

A future currency payment is a liability in the foreign currency. A buyer of USD/TRY futures benefits when dollars become more expensive in lira, offsetting part of that liability. A dollar receivable has the opposite direction and is hedged by a short. Netting invoices can reduce quantity, but only when dates and legal certainty justify it. A cash-settled future creates lira profit or loss, not the invoice dollars.

Price and return drivers

Contracts = foreign-currency exposure / base-currency amount per contract. Effective lira purchase cost = spot invoice payment − hedge gains + all costs. Differences between contract final reference and the actual conversion rate leave FX basis risk, and early invoice payment can force a pre-expiry close.

Worked case

Hypothetical importer owes USD 75,000 on a contract settlement date. Assume USD 1,000 per cash-settled future; buy 75 at TRY 42/USD. At payment the final reference is 45 and executable spot purchase 45.10. Futures gain = 75 × 1,000 × (45 − 42) = TRY 225,000. Invoice costs TRY 3,382,500; less hedge gain gives TRY 3,157,500, or 42.10 per USD. Execution commission TRY 3,000 and collateral funding TRY 4,500 raise total to TRY 3,165,000, or 42.20/USD before tax. The 0.10 conversion basis costs TRY 7,500.

Adverse case

If USD falls to 38, long futures lose TRY 300,000 while a spot invoice at 38.10 costs TRY 2,857,500. Net remains TRY 3,157,500 before the same charges, but the futures loss can be due before the cheaper invoice purchase. If the invoice is cancelled, the long is an unbacked currency exposure. If payment moves earlier and futures basis widens, the intended rate is no longer fixed.

Practical use

Verify cash versus physical delivery, currency units, maturity and actual member access. The USD 1,000 amount is a declared teaching assumption here; check the chosen current series independently. Reserve collateral and worst-path variation cash. Include currency conversion spread, commissions, transfer charges, funding and applicable taxes; invoice settlement and futures cash may use different bank cutoffs.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Use matched cash flows to avoid hedging gross receipts and payments twice. Do not hedge uncertain sales at 100% if cancellation would violate exposure limits. A forward may align a nonstandard payment date more closely, but its credit and termination terms require a separate comparison. Decline any route whose cash timing cannot be reconciled.

Practice and references

Exercise: USD 23,400 payable, hypothetical USD 1,000 contracts. Calculate rounding residuals for 23 and 24 contracts and stress a TRY 4 currency move. Solution: twenty-three longs cover USD 23,000 and leave USD 400. If the dollar rises TRY 4, residual cost rises TRY 1,600 before basis and fees. Twenty-four contracts overhedge USD 600; a TRY 4 fall then produces TRY 2,400 loss on the excess hedge.

Takeaway: Reconcile an invoice hedge with daily margin cash using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: Currency hedge effective payment. Glossary: Currency liability, Overhedge. Next lesson: C3T4L4. Topic test.

Sources and verification date (2026-10-26):

Related product cards: viop-currency-future.

Shared reference guide