Derivative Markets
Size a forward hedge
What you will learn
Connect hedge size to cash timing and forecast uncertainty.
Hedged payable cost = hedged notional × forward + residual notional × spot
Identify the underlying currency, direction, notional and settlement date. Match the forward to the reliable portion of the exposure. Compare a partial hedge with full coverage across stronger and weaker spot rates. Forecast changes can leave a residual exposure or an overhedge. A fictional Indian importer hedges $60,000 of a $100,000 invoice at ₹84 and buys the rest at ₹87. Total cost is ₹85.2 lakh.
A fictional Indian importer hedges $60,000 of a $100,000 invoice at ₹84 and buys the rest at ₹87. Total cost is ₹85.2 lakh.
Identify the underlying currency, direction, notional and settlement date. Match the forward to the reliable portion of the exposure. Compare a partial hedge with full coverage across stronger and weaker spot rates. Forecast changes can leave a residual exposure or an overhedge. A fictional Indian importer hedges $60,000 of a $100,000 invoice at ₹84 and buys the rest at ₹87. Total cost is ₹85.2 lakh.
Which trade protects a USD payable against rupee weakness?