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for question kenduri co (6/13) payment in dollars 2.4 m, the unhedge amount is divided by 1.5996 which is the 3 month forward , why didn’t we use 1.6037
dollar : pound
spot 1.5938 – 1.5962
3 month forward 1.5996- 1.6037whereas for question MJY (12/05)
PAYMENT in dollars 110000, the overhedge amount is divided by 1.7982dollar : pound
spot 1 1.7982 – 1.8010
3 mths forward 1.7835- 1.7861why have the examiner use spot rate for one and forward rate for the other.
does it depend on over or under hedge.thank you sir
In Kenduri they have under hedged and therefore need to buy $’s forward. The forward rate for buying $’s is 1.5996.
In MJY the only place in the answer that the spot rate has been used is for the calculation of the premium payable, because the premium is always payable immediately. It has nothing to do with over or under hedging.
I do suggest that you watch my free lectures on foreign exchange risk management.
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