a Explain how you could use a forward contract to hedge the exchange rate risk associated with your position in British stocks b If interest rate parity holds, does this limit the effectiveness of a forward rate contract as a hedge c Explain how you could use an options contract to hedge the exchan...

a You could negotiate a forward contract to sell pounds one year from now You would specify an amo ...

a. Explain how you could use a forward contract to hedge the exchange rate risk associated with

Question:

a. Explain how you could use a forward contract to hedge the risk associated with your position in British If interest rate parity holds, does this limit the effectiveness of a forward rate contract as a hedge?
c. Explain how you could use an options contract to hedge the risk associated with your position in Assume that while you are concerned about the potential decline in the pound's value, you also believe that the pound could appreciate against the dollar over the next year. You would like to benefit from the potential appreciation of the pound but wish to hedge against the possible depreciation of the pound. Should you use a forward contract or options contracts to hedge your position? Explain.
You are the manager of a stock for a financial institution, and about 20 percent of the stock that you manage is in British You expect the British stock market to perform well over the next year, and you plan to sell the one year from now (and will convert the British pounds received to dollars at that time). However, you are concerned that the British pound may depreciate against the dollar over the next year.
Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...