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hi john,
hope u fine. casasophia..ques..currency option part..final bit of answer lets consider for exercise price 1.36,
amount not hedged= 110,000 i agree and got it all except i wana know what if this 110,000 was a surplus amount, overhedged by that amount…the total contract receipt would be 1465000 – premium cost 301435 and that 110,000 surplus would be exchanged on fwd market but what to do with it..deduct it? if so why? please explainI get what happened in the actual question just wondering wat if it was overhedged by 110000
If we had over-hedged then we would subtract it because we would need to buy $’s in order to have enough $’s to be able to exercise the option.
my question is that why future contract is not closed out and no gain/loss calculated in future sontracts???
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