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Currency Option 1

SSaimon6y ago
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........
John MoffatJohn MoffatTutor6y ago#1
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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