Page 164 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx
P. 164
Chapter 12
Example 8
For illustrative purposes:
Market rate of 1.6000, with 271 contracts (overhedge)
Hedge amount = 271 × 31,250 = 8,468,750
Overhedged by (8,468,750 × 1.4800 = 12,533,750 =) 33,750, convert at the
market rate
33,750/1.6000 = 21,093.75
Value of contract 8,468,750
Over hedge –21,093.75
Premium for 271 contracts –145,934
Net receipt 8,301,722.25
Illustrations and further practice
Look at the illustration in Chapter 12 on options and try TYU 22 – 25
154
