The document provides example of receivable and payable hedge through forward contracts. The document is super easy to understand and you will be able to get a hold of forward contract hedging in no time.
Which currency to buy and which to sell? Which currency to buy and which to sell?
- UK Company so its own currency is GBP - UK Company so its own currency is GBP
- Payment required to be made in USD - Receivable amount will be received in USD
- USD Buy, GBP Sell - USD Sell, GBP Buy
Which spot rate to be used? Which spot rate to be used?
- 1 GBP = USD 1.5100 or 1 GBP = USD 1.5180 - 1.5100 USD = 1 GBP or 1.5180 USD = 1 GBP
- First case, I will be able to get USD 1.5100 for every GBP - First case, I will be able to get 1 GBP for every 1.5100 USD
- 2nd case, I will be able to get USD 1.5180 for every GBP - 2nd case, I will be able to get 1 GBP for every 1.5180 USD
- Bank will always let us buy less USD for every GBP - Bank will always let us spend more USD to get 1 GBP
- 1 GBP = USD 1.5100 will be used as Spot rate - 1.5180 USD = 1 GBP will be used as Spot rate
Which Forward Rate to be used? Which Forward Rate to be used?
- Today's date - May 1, 2009 - Today's date - May 1, 2009
- Payment Date - August 1, 2009 - Receivable Date - September 1, 2009
- Time duration = 3 months - Time duration = 4 months
- 3 Month Forward 0.51 c pm will be used - 4 Month Forward 0.61 c pm will be used
Forward Rate Calculation? Forward Rate Calculation?
- Forward Rate = Spot rate (+ / -) Forward rate - Forward Rate = Spot rate (+ / -) Forward rate
- C = 0.01 - C = 0.01
- Pm = Premium = This will be deducted from spot rate - Pm = Premium = This will be deducted from spot rate
- Dis = Discount = This will be added in the spot rate - Dis = Discount = This will be added in the spot rate
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ahmad_hasan191. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £10.49. You're not tied to anything after your purchase.
