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i have just seen your lecture videos why we use forward rate to get CHF23,415, but the video does not seem to tell the reason why we use the forward for that…
lecturer merely mentions to use forward rate to fix an exchange rate….however we can also futures to fix an exchange rate isn’t ???
for 25,000 us dollar i’m not still not sure why we have to use forward…. we can also use futures isn’t ?
lecturer in the video states that examiner wants us the forward rate, so mandatorily we use forward rate for any short fall( 25,000 US dollars ) ?
(Sorry John let me rephrase it)
for 25,000 us dollar i’m not still not sure why we have to use forward…. we can also use futures isn’t ?
lecturer in the video states that examiner wants us to use the forward rate, so mandatorily we simply use forward rate for any short fall( eg in this question, 25,000 US dollars ) for the option questions like this ??
Futures have to be used in fixed sized contracts. Because of this it is not possible to use futures for the exact amount that we need. We deal in 38 contracts, but that means that we are under-hedging by $25,000. We cannot use futures on the $25,000 for the exact reason that it is there in the first place!! If we want to hedge against the risk on this $25,000 then the only choice is to use forward rates on it.
You cannot possibly have watched all my free lectures on foreign exchange risk management, because I explain about this, and you cannot expect me to type out my lectures again here!
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