spot FX rate questions
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6 Terms
how do you know if put or call
call option = make a payment
put option = due to receive
how do you calculate forward contract when a company is making the payment ?
forward rate = smaller spot rate - larger forward premium
payment in £ = payment/ forward rate
what is the sentence you start a money hedge payment with?
to hedge a euro payment, the company needs to create a euro asset which with interest will equal to the payment made in x month’s time
how do you calculate the present value of money hedge payment?
to have a deposit of €, the present value is = € / (1+ euro deposit rate/n)
where n = 12/x
how do you calculate buy € at spot rate for money hedge payment?
y/ smaller spot rate no = £
how do you calculate the total cost for a money hedge payment?
borrow in £ so the total cost with interest = £ x (1+ sterling borrowing rate/n)