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John Moffat.
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duybachhpvn
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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
John Moffat
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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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