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Finding the non hedge amt and hedging and finding the gain / loss are both same method
No they are not the same.
It is relevant when using futures in that because of the fixed size of contracts there is likely to be an amount that is not able to be hedged using futures.
This is all explained in my free lectures on foreign exchange and interest rate risk management.
thank you
Im sorry i went through the lecs before i used to refer the notes as well but im getting confused
however in eg 11 u have given contract size but y do u calculate gain/ lossis this correct
when spot rates on transaction date is not given i should find the unhedged amount
when spot rate is given i can use gain / loss methodI assume that you are referring to example 11 of Chapter 18.
What you have written is not correct. There is always a gain or loss using futures, on the contract amount. If we are not given the spot rate on the date of the transaction we use the ‘lock-in rate’ as explained in example 13.
In addition, if the amount hedged does not equal the amount of the transaction (because of it having been fixed size contracts) then there will be an amount over or under hedged. This is not an alternative – it is in addition!
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