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Re: ::::IIVU ASKARII:::: FIN622 SUBJECTIVE

lec#39 slides

When a Future Payment in FCY is required:

 

A hedge can be created by exchanging domestic currency for foreign currency now and putting the fcy under a deposit.

The term of deposit should end on the date fcy payment will be made.

Secondly, the deposit plus interest thereof should equal to the fcy payment.

In this way we can fix the cash flow in local currency

And lec39 1st paragraph
a hedge can be created by exchanging local currency for FCY now using spot rates and putting 
the currency on deposit until the future payment is to be made. The amount borrowed and the interest
earned on the deposit should be equal to the FCY. If it is not the case then it will not be a clean hedge.


On Sun, Feb 13, 2011 at 7:48 PM, Asad Munir <mc090402550@gmail.com> wrote:

Question No: 48    ( Marks: 5 )

How a firm can create a money market hedge against transaction exposure, when the firm has to make a payment at some future date?



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