Suppose you go long in a foreign currency futures contract. Under what circumstances is your cumulative payoff equal to that of buying the currency forward?

What will be an ideal response?

The payoffs of futures contracts and forward contracts are only "essentially the same" because a slight difference in payoffs arises due to the fact that interest is earned on future profits, or interest must be paid on future losses, in the marking to market process. Technically, if the path of short-term interest rates could be foreseen—that is, if there were no random changes in future short-term interest rates—there would be an arbitrage possibility if the forward exchange rate were different from the futures price because you would know how you could invest the profits or borrow to finance your losses. However, future interest rates are not known with certainty, so forward prices and futures prices can be different, in theory. In practice, though, the price differentials are minimal, and they appear to be within the transaction costs of the forward market. Therefore, we argue that futures prices are "essentially the same" as forward prices.