Hi,
I hope you guys can help me with a solution to this problem.
Let's say you have bought something for YYY 100 000 which will be handed over to you in December 2011. And you also have the following financial data in february 1. 2011 for the currencies XXX and YYY:
Exchange rates XXX/YYY:
Spot: 6.94
3m fwd: 7.01
6m fwd: 7.08
9m fwd: 7.02
12m fwd: 7.20
Interest rates:
XXX: 1m: 5.41, 3m: 5.25, 6m: 5.44, 12m: 5.32
YYY 1m: 1.15 3m: 1.17 6m: 1.50 12m: 1.55
All interest rates are based on annual compounding.
Is there a way you can use several forward contracts to reduce risk? And how does it work?
I hope you guys can help me with a solution to this problem.
Let's say you have bought something for YYY 100 000 which will be handed over to you in December 2011. And you also have the following financial data in february 1. 2011 for the currencies XXX and YYY:
Exchange rates XXX/YYY:
Spot: 6.94
3m fwd: 7.01
6m fwd: 7.08
9m fwd: 7.02
12m fwd: 7.20
Interest rates:
XXX: 1m: 5.41, 3m: 5.25, 6m: 5.44, 12m: 5.32
YYY 1m: 1.15 3m: 1.17 6m: 1.50 12m: 1.55
All interest rates are based on annual compounding.
Is there a way you can use several forward contracts to reduce risk? And how does it work?
