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1. May I ask what are the hedging techniques (other than currency forwards, money market hedge, options, futures) we can use to eliminate currency risk if we are going to hedge the receivable amount of 25 million euro in 6 months time?
2. Can we use swap in the above scenario?
One more question
3. Can we use leading and lagging to hedge against receipt? Is it logical to do so?
You must watch the free lectures because everything you ask is explained in my lectures (and you can’t expect me to type them all out here 🙂 )
ya, I have watched all the free lectures video, but most of the hedging techniques are more useful for hedge against payments rather than hedge against receipts (except forward, futures, options, money market hedge, leading, matching, netting, invoicing in home currency)
For example, like if we are talking about leading and lagging. Leading may be possible for hedging against receipt. However, it seems like not really right to use lagging to hedge against receipt is it? because seems like no logical to ask your customers to pay u late??
Also, like currency swap. It is related to swapping against the interest payments (like one party want floating rate, another want fixed rate). So, if we merely want to use it to hedge against receipt is not possible right?
All of them can be used for receipts and payments. You are right to say that it might not be logical to ask customers to pay late, but it might well be sensible not to push them to pay quickly 🙂
As I do state in my lectures, leading and lagging and swaps are not really actually hedging – more being ‘sensible’. But the examiner includes them in the list of standard approaches and therefore so do I in my lectures.
(And appreciate that in Paper FM you will not be expected to show any numbers for swaps . Currency swaps are really just interest rate swaps, but this is not relevant until Paper AFM)