Assuming a discounting factor of 1 in your calculation, find the amount the forward contract hedging...

Assuming a discounting factor of 1 in your calculation, find the amount the forward contract hedging instrument which is a forward contract to buy GDP500,000, spot rate at inception is €1.50 for £1, the forward rate is €1.70 for £1, spot rate at maturity is €1.65 for £1, the start date is 1 April 2017, and the maturity date is 31 March 2018.

Select one:

a. EUR50,000

b. EUR75,000

c. EUR25,000

d. EUR100,000

Solutions

Expert Solution

Forward contract ex rate	€ 1.70
Spot rate at maturity	€ 1.65

Transaction size	£ 500,000

Value of hedge=	500000*(1.70-1.65)
Value of hedge=	€ 25,000

jeff jeffy answered 1 year ago

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