Forwards and Futures - Hedging 1 by Edu Pristine

Author of lecture Forwards and Futures - Hedging 1

Edu Pristine

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... correlation between spot and future prices makes hedging effective as on one side we are long on the spot and this can be hedged by shorting future contracts. - The optimal number of contracts (N*) ...

... Then - In order to change the beta (?) of the portfolio to (?*), we need to long or short the (N*) number of contracts depending ...

... continuous dividend yield is the foreign risk-free interest rate. - It follows that if rf is the foreign risk-free interest rate - Formula to remember: –If Spot rate is given in USD/INR terms ...

... the efficient markets hypothesis, such as uncovered interest parity. - A true deviation from CIP represents a profitable arbitrage opportunity at a particular point in time to a market trader. In order to be able to measure such deviations, therefore, it is important to have data on the appropriate exchange rates and interest rates ...

... traded today but for delivery and payment on a specific future date. - Uncovered interest rate parity (UIRP) states that an appreciation or depreciation of one currency against another currency might be neutralized by a change in the interest rate differential. If US interest rates increase ...

... cash commodity being hedged. - For Example you are holding$10,000 inforeign equity, which exposes you to currency risk. If you hedge $5,000 worth of the equity with acurrency position, your ...

... is to be bought or sold. - What if HP didn’t know when his hens would be ready for sale? - What if he doesn’t get a long contract that will close his position just one day before the closing of his short contract? ...