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Linda_us
Linda_us, Finance, Accounts & Homework Tutor
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for Linda FORWARD VERSUS OPTIONS HEDGE ON RECEIVABLES. You

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for Linda: FORWARD VERSUS OPTIONS HEDGE ON RECEIVABLES. You are on an exporter of goods to the United Kingdom, and you believe that today's forwad rate of the British pound substantally underestimates the future spot rate. Company policy requires you to hedge your British pound receivables in some way. Would a forward hedge or a put option hedge be more appropriate? WExplain
HiCustomerbr />
Thank you for the request.

In this question there are no figures, hence I feel that it should be answered by presuming a certain figure just for explaining the answer. For e.g.

We assume Forward Rate for British Pound (GBP)

1GBP = 2 USD
and Expected Future Spot Rate
1GBP = 2.5 USD.

This is how I understand the question. Shall I answer the question assuming the above as an example. If you agree let me know and I will proceed with the answer, OR if you understand the question in a different view kindly let me know your perspective.

Regards,

Linda
Customer: replied 7 years ago.

ON RECEIVABLES- COMPARE FORWARD VS. OPTION HEDGE- WOULD A FORWARD HEDGE OR PUT OPTION BE MORE APPROPRIATE

HiCustomer

I understand we have to compare FORWARD VS. OPTION HEDGE but if we assume some figures regarding Forward rate and expected future rate does the above example fits into your question.

Regards

Linda
Customer: replied 7 years ago.
YES- IN OPTION HEDGE WE CAN NOT EXERCISE AND JUST PAY FEE. IN FORWARD WE WILL EXERCISE IS FORWARD IS LESS THAN FUTURE SPOT RATE
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