I think this is a bit odd question. Let us say I want to hedge my fx exposure every month but using 3 month forwards . How can I do that ? Is it not easy just to use 1 month forwards ? I recalculate my expsoure every month. In other words let us say I am us investor but I get my profits from a euro company. So every month I calcuate the expected return I might get the next month and do the hedge accordingly. This is straight forward with a one month forward but assuming there exists only 3 month forward contracts in the market(hypothetical) how can one do the hedging ?


1 Answer 1


A good question... clearly you've read using 3 month forwards and see they are more liquid than other FX forward instruments.

I guess that if there were only 3 month forward contracts in the market then by buying and selling the 3 months for different maturities, you could structure a set of 1 month forwards.

so from today 21st Aug to hedge a short position:

  • buy 3 month for 21st Nov
  • wait 1 month until 21st Sep
  • On 21st Sep sell 3 month for 21st Dec

You've covered 1 month from 21st Aug to 21st Sep.

But there's a tail position to cover from 21st Nov to 21st Dec. Maybe someone else can do better there.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.