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Chapter 16
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
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