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Sir
Suppose i m going to receive money in $ and my currency is Pound
i m using currency option to hedge exchange rate risk
using currency option i have over hedged suppose $60000. I have forward rate available $1.36-$1.37
i want to know what should i do with is over hedged amount in my final outcome of hedge (Meaning Total)??
Should it be nil or should i convert it using forward rate $1.37 and show it as gain??
I m asking this because in case of payment what i normally saw that overhedged portion is converted using forward rate and considered it as gain and deducted from total.
I didn’t encountered any question with i m receiving and there were overhedge so i m confused about the treatment……..
You do not make gains or losses when using forward rates.
The overheated amount is simply converted at the forward rate. If you have overhedged a payment then the extra is converted back at the forward rate and is a receipt (which reduces the net payment). If you have overhedged a receipt, then the extra is converted at the forward rate and is a payment.
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