Consider that a UK company A has to receive $100,000 in one months time.
The futures rate for one month is $1.6 to 1 sterling pound.
So the company would sell $100,000 at the future rate of 1.6 as they will receive the payment within one month. Their proceeds are fixed at 100,000/1.6 = £ 62,500.
After 1 month, the rate is $1.7 to 1 £.
The company will receive the actual $100,000 which will be worth 100,000/1.7 = £58,823.
On the futures contract they will settle their contract. Meaning the contract which was sold at $1.6 per pound will be bought at $1.7 per pound. The profit on the trade will be (100,000/1.7) – (100,000/1.6) which will be £3677. Hence the total proceeds will be £62,500.
After 1 month, the rate is $1.5 to £1.
The company will receive the $100,000 which will be worth 100,000/1.5 = £66,667.
Similar to the above contract the futures contract will be settled at a loss of £4167 and hence the total proceeds will be £62,500.
Useful for your F9 financial management paper.