For example, at present, the euro is 1: 4, and 1 euro is exchanged for 4 dollars.
In other words, investors exchanged $2 million for € 500,000.
The bank's interest on the euro is 100% for one month, and 500,000 euros will become 2 million euros after three months in the bank.
Three months after China's entry into WTO, the euro depreciated, and $65,438 +0 can be exchanged for 2 euros.
Then, after three months, investors will get 2 million euros into dollars and only get 6.5438+0 million dollars. As the euro depreciated against the dollar, this investment suffered losses. In order to avoid this loss, investors made short-term hedging.
Because the euro interest rate of the deposit bank is higher than that of the US dollar 10% 10%, this investment method is adopted.
That is, in the futures market, the euro contract was sold at a price of 4, with a total value of 8 million US dollars (not a deposit). Three months later, the euro depreciated to 0.5. At this time, if you buy a euro contract, the liquidation income will be (4-0.5)/4 * 8 million = 7 million dollars.
The profit in the futures market is $7 million, but due to exchange rate changes, the operating result in the spot market is $6,543,800+,which is offset by the profit and loss of $7 million in the futures market, and the total profit is $6 million, thus completely avoiding the losses caused by exchange rate changes. The investment of $2 million, 100% monthly simple interest income, the total income after 3 months is $6 million, and the effect is the same.