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Hi,
In hedging foreign exchange risk using futures, i was wondering about the time value for money in respect of the premiums paid to the dealer regardless of the futures outcome. Although we will receive the money in full plus/minus any gains/loss made on the deal,there is interest lost in the process. is there a way this could be accounted for in practice or it is insignificant and therefore deemed to be the criticism of using futures as the method of hedging.
(just wanted to present this in writing part of the exam should opportunity arise.)
thanks,johnThe only relevance of interest (which is not required in calculations) is the interest last on the margin (deposit). The transaction itself (and the settling up on the futures which is on the same date) does not occur any earlier or later then it otherwise would do anyway.
thanks sir for your help. I really enjoy how you present this technical subject and make it more logical than learning rules.
thanks!
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