originally posted by Ian Fitzsimmons:
I'm kind of sorry I asked about this now, I didn't think the topic was this complicated.
One thing I've learned: I wouldn't want to cross Oswaldo at a dark trading desk.
Actually, Ian, the answer remains pretty much what it was; buying forwards for an importer is a good way either to have expenses be predictable or, to bet that the price one gets today will be better than the price one gets in 3 months. No one really has argued about this. There have been two parts of the argument:
1)Granted that the prices of forwards will sooner rather than later, remain in lock-step with spot prices, do speculations ever occur. I pursued this as a matter of interest, because Oswaldo seemed to say it could not happen, which seems counter-intuitive to me and to conflict with my limited experience with equities. I take SF Joe to have explained the principle and Cole to have explained how the principle works and still accounts for speculation, which turns out to be the same way as in the case of the equities market and removes my surprise. I'm happy to think I was just misinterpreting Oswaldo in taking him to suggest that the price relations were in an absolutely steady and invarying relationship. None of this has any relationship to what an importer might do since they won't move enough money to do more than accept a market modulated bid or offer one.
2)Because forwards are sometimes slightly less than spot, I said that there could be advantages or disadvantages to buying forwards vs. buying spots. Oswaldo vigorously contested this on the principle that those differences were merely differences in interest rates and it wouldn't matter what one did. And, with regard to how those prices arrive where they are, he's right. I find Cole's explanation, again, clearer, and more in accord with previous ones I have been given, but nevertheless, grosso modo, as they say, he's right. I equally vigorously disputed him on the basis that individuals with bank accounts don't trade bonds but cash and those forward differences, regardless of what they represented in the international market place represented absolute differences to the individuals involved. Assuming importers to bank money and not exchange government bonds, I take my example of my own case to be the operant one here, though Oswaldo may still disagree. I doubt that importers do attend to this, but I can think of situations where they ought.
As to the actual question, we know that Dan Kravitz buys forwards and Nicolas Mestre does not.
So all in all, I'd say a profitable exchange.
