For a US investor to hedge the bonds the investor would (1) Buy EURUSD in the Spot market, (2) Buy the German bonds with the EUR proceeds, (3) Short EURUSD in the forward market to provide a guaranteed repatriation rate when the bonds mature (thus avoiding FX risk).
Currently the two year forward exchange premium/discount for the EURUSD is 532 forward ...
Your question is about futures, which trade on a Futures Exchange.
The only future contract that I know that meets your requirement is the "Euro FX" contract that trades on the CME (Chicago Mercantile Exchange) under the ticker 6E. It is quoted in EURUSD, one contract calls for the delivery of EUR 125,000 and requires a margin deposit in USD.
Certainly for ...
I do it very simply. First, figure out the swap rate for each currency. Let's do those for 1y EUR/USD:
1) y US swap is 1.8104
2) y EUR swap is -.5432 mid (yes, negative)
3) look at the implied yield for the FX spot vs the 1y fwd. Spot is 1.1052 and 1y is 1.1341275. That gives you .236075 EUR more at settlement, which is 2.136%
rate of 2.136 - [us ...
Similar to above, I’ve wargamed this one in the past and come to the the simple conclusion that the currency and local equity return are informative about the probability of default.
Defaults are not typically informative about currency risk, because the currency typically jumps (on the USDCCY basis in EM) in the “crisis”, well before any default actually ...
I have actually looked into this a lot and I don't have a full answer.
You can (sort of) see what the market participants think by looking at the consensus "quanto factors" published monthly by IHS Markit Totem. They even have some term structure, although usually it's the same factor for all tenors. For some sovereigns, people sometimes trade a CDS ...
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Long EUR is slightly incorrect, unless you are always measuring your Pnl in USD.
Coz if i have 100mio EUR's and it depreciates against USD, it's still 100mio EUR's. I will still be a millionaire :) (sadly not)