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june 2004 ,polytot , in future hedge calculation how did we get $1883 and 1.5353? over /under hedge appears in option hedge right ?i didnt understand this calculation too –> 43*62500*1.5353
1.5353 is the lock-in rate (have you watched my free lecture on lock-in rates?). It is the current December futures price as adjust for the change in the basis.
Since they will have purchased 43 futures contracts of 62,500 pounds each, they will be hedging a total of 43 x 62500 pounds. At the locking rate of 1.5353, this is equivalent to $43 x 62500 x 1.5353, which is more that the amount of the transaction and therefore is an over hedge.
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