In: Finance
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
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 |