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Dear sir,
I have some confusion regarding this qnThe answer regarding futures hedging says this
Using spot rate, predicted futures rate = 1·1222 – ([1·1222 – 1·1204] x 4/6) = 1·1210
Expected receipt = $6,450,000/1·1210 = CHF5,753,791
Number of contracts = CHF5,753,791/125,000 = 46·03 contracts, approximately 46 contractsI divided 6,450,000 by the spot rate of 1·1222 and I get 46 as well.
Isn’t that supposed to be receipt by spot rate by the size of futures contarcts or have i got this wrong?
Thanks
It is strictly better to divide by the lock-in rate, but you would not lose marks for what you have done 🙂
Dear sir,
If I divide by 1.1204 (6-month expiry futures price) instead of lock in rate, I also got 46 contracts. Is it correct or not?
Thank you!
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