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I need a clarification sir. I’m a bit confused about the requirements on money market hedge.
When asked to calculate the dollar cost of a money market hedge, is this simply requiring for the conversion value at the spot rate? Also, when asked to evaluate, we compare the value at conversion using both money market hedge and forward hedge.
We don’t need to work out the effect of the interest rate when the final receipt/payment will be made, unless asked for “what will be the dollar receipt/payment”, right.
Don’t bother about the first question sir, I’ve figured it out after watching the lectures again.
But I saw this in the Kaplan Kit and I have no idea what it means.
“H company’s bank have offered an FRA on the following terms
3v9 FRA 7.2 – 7.8%”
I am pleased you figured out the answer to your first question 🙂
With regard to your second question – it is explained completely in my free lectures!!
It is a forward rate agreement on a loan or deposit starting in 3 months time and finishing in 9 months time. The lower rate is for interest on a deposit, the higher rate is for interest on a loan.
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