ABSTRACT
The prices in Figure 4.1 are US dollar prices per unit of foreign currency. To convert these per-unit prices into futures contract prices it is necessary to multiply the prices in the figure by the contract amounts. For example, the Japanese yen contract is for ¥12.5 million. With the settle price per yen for December delivery of $0.008695, the price of one Japanese yen contract is
$0:008695/¥ ¥12,500,000 ¼ $108,687 Note that as always, the currency symbols can be canceled, so that ¥ disappears leaving a price in US dollars. Similarly, a September 2004 Canadian dollar contract has a settle price of
$0:7237/Can$ Can$100,000 ¼ $72,370 As with forward exchange contracts, if we assume risk neutrality, the per unit price of futures equals the expected future spot exchange rate of the foreign currency. Otherwise, if, for example, the expected September 2004 spot rate of the Canadian dollar were above $0.7237/Can$, speculators would buy Canadian dollar futures, pushing the futures price up to the expected future spot level. Similarly, if the expected September 2004 spot rate were below the futures price of $0.7237/Can$, speculators would sell Canadian dollar futures until they had forced the futures price back to the expected future spot rate. With futures prices equal to expected future spot exchange rates, it follows that it is changes in expected spot exchange rates that drive futures contract prices up and down.
