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Hi sir,
Hope you’re doing great.
In hedging do I have to always use the exercise price which is closest to the month of transaction regardless of whether it expires before or after the transaction? I’m a bit confused..
I assume that you are referring to the use of options (which is only one of the methods of hedging).
In this case we always use the exercise price that is first available after the date of the transaction.
This is all explained (with examples) in my free lectures on foreign exchange risk management.
Yes, that is exactly what I was referring to. Thank you so much for clearing it up, it all makes sense now 🙂
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