Return on hedged position using futures

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pollfre

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Hi guys,
below an example:
July 1: spot 1.20 EUR/USD
Sept 1 futures: 1.3
in Sept, futures is at 1.39 and spot at 1.4
you hold 1mn EUR and fully hedge it.
in Sept, your position grows to 1.2mn EUR. What is your hedged return?
1st thing I do not understand: how can futures prices in Sept differ from spot price?!?!
2nd thing I do not understand: why is it incorrect to calculate the return in 2 steps (1mn using the return on the hedge and 0.2 mn assuming it was not hedged and thus convert this at spot rate)
Help!!!!
 
how can futures prices in Sept differ from spot price?!?!
 
they can. - the spot price is the price then
futures price is the spot futures price in the past grown at the interest rate
3 months ago - you had a spot price of X
3 months later - X * (1+r)^3/12 is the futures price for the X
now the spot price is Y which would apply to a new futures contract signed up today.
 
position = 1.2 (1.4) - 1 (1.2) = 0.48
Futures = -1 ( 1.39 - 1.2) = -0.19
net gain = 0.28
net gain % = 0.28 / 1.2 * 100 = 23.333%?
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as to your question -> 2nd thing I do not understand: why is it incorrect to calculate the return in 2 steps (1mn using the return on the hedge and 0.2 mn assuming it was not hedged and thus convert this at spot rate)
this is called hedging the principle. so you hedged 1 Million - that is all you did. Your position grew to 1.2 Million - the remaining 0.2 Million growth remained unhedged.
 
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