Question
You will receive $100,000 in two years time. You aim to hedge your exposure using futures contracts on the GBP/USD exchange rate maturing in 2
You will receive $100,000 in two years time. You aim to hedge your exposure using futures contracts on the GBP/USD exchange rate maturing in 2 years and 2 months. The current GBP/USD futures price is 0.8, while the spot and futures GBP/USD prices in two years time are, respectively, 0.80 and 0.75.
Assuming that you can sell exactly $100,000 in the futures market (i.e., so that there is no size mismatch), what is the basis of the hedged cash flow? Please show full calculation.
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Financial Markets and Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
5th edition
321280299, 321280296, 978-0321280299
