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Why is it that examiner has used the forward hedge price (23118000) for the 20 m euro receipt from sale investment rather than the higher figure that comes from futures hedge of 23121387? i refer to part b(iii).
thankyouBut the examiner answers your question in his answer!!!
“On the other hand, when using forward contracts to hedge the receipt exposure, Lirio Co knows the exact amount it will receive. It is therefore recommended that Lirio Co use the forward markets to hedge the expected receipt.
[Note: It could be argued that in spite of the issues when hedging with futures, the higher receipt obtained from using futures markets to hedge mean that they should be used. This is acceptable as well.]”
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