Dear Sir, Good afternoon,
I have summarized some high points below. Please kindly to have a look.
1. Exporter hedging against an exchange rate INCREASE will SELL exchange rate future NOW and BUY them at a FUTURE date.
2. Importer hedging against an exchange rate DECREASE will BUY exchange rate future NOW and SELL them at a FUTURE date.
3. Borrower hedging against an interest rate INCREASE will SELL interest rate future NOW and BUY them at a FUTURE date.
4. Lender hedging against an interest rate DECREASE will BUY interest rate future now and SELL them at a FUTURE date.
5. Exporter can use a PUT option to hedge against exchange rate INCREASE.
6. Importer can use a CALL option to hedge against exchange rate DECREASE.
7.Borrower can use a PUT option to hedge against interest rate INCREASE.
8. Lender can use a CALL option to hedge against interest rate DECREASE.
Thank you so much.
Ask the Tutor ACCA FM
exchange rate and interest rate
10y ago#11 & 2 Depends on what currency the futures contacts are quoted in (as against which currency we are wanting to buy or sell).
3 & 4 are correct
5 & 6 Depends on what the currencies are (see 1 & 2)
7 & 8 are correct
Yes. It depends on the currency. Thanks so much.
10y ago#3You are welcome :-)
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