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what is hedging?& what do you mean forward contracts & money market hedging?
please provide some examples based on the above questionsBest is for you to look at my lectures (and the Course Notes) on these areas. They are both on this website.
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just a simple hedging means to minimise the risk………..and forward contract mean that a binding contract between bank and customer to buy or sell a fixed amount of foreign currency at the forward rate on fixed date…..money market hedging means to convert one currency into another currency and putting the money on deposit until the time the transaction completed , hopping to take advantage of favourable interest rate movements…………..
you are correct about the forward contract. However money market hedging is not hoping for interest rate movements – the depositing (or borrowing – depends on whether you are paying or receiving foreign currency) is always done at fixed interest, otherwise there would be risk. The effect is to remove the exchange rate risk completely – conversion is done at todays spot rate, and the borrowing/depositing is at fixed interest.
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