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Hi John,
To determine the number of future contracts required to hedge, we have to calculate the hedge amount first. I dont really know which rate I should use to calculate this hedge amount, whether I should convert at spot rate or I should convert at future price on the date of setting up the hedge?
I saw different answers in books and lectures so quite confused which one is right
Thanks
There is an argument for both! However best is to use the current future price.
(In fact it is rare for it to actually make a difference in the number of contracts, because of rounding to the nearest contract, and you are unlikely to lose any marks even if you are a contract different 🙂 )
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