Page 203 - AFM Integrated Workbook STUDENT S18-J19

Hedging foreign exchange risk

Illustration 4

In the Tomtom Co question above, the lock-in rate would be:

Opening futures price + unexpired basis on the transaction date

= 0.5600 + 0.0033 (from the basis working) = £0.5633 to C$1

Therefore the likely financial result of the futures hedge is

C$5 million × 0.5633 = £2,816,500, exactly as before.

Illustrations and further practice

Now try Illustrations 1 and 2 in Chapter 10

191