On page 311 of the Derivaitve curriculum book it notes: “Stock index futures limit an investor’s foreign currency exposure to the margin. Any realized profit can be repatriated immediately in the domestic currency. So a Swiss investor who is bullish on the S&P 500 but but not the dollar can buy the S&P 500 futures. Hedging the margin would provide the Swiss investor with complete currency protection.” They illustrate in Example 5 of an investor who purchases futures on the TOPIX and hedges only their margin. Question: If the Swiss investor wants to purchase the U.S. denominated future, first they need to convert Swiss to U.S. dollars at the spot exchange rate. Then at the expiry of the futures, they need to convert from U.S. to CHF. Why isn’t the full notional value of the futures contract hedged as opposed to just the initial margin?
Stock index futures limit an investor’s foreign currency exposure to the margin. Any realized profit can be repatriated immediately in the domestic currency. So a Swiss investor who is bullish on the SPY but not the dollar can buy the S&P 500 futures. Hedging the margin would provide the Swiss investor with complete currency protection.