Question

With the spot rate E_VND/USD = 21,000, the Forward Rate: F_VND/USD = 21,250; the Expected Rate after 3 months: Ee_VND/USD = 22,000, the hedging cost to an importer participating in the risk handling will be?

Answer 1

Answer:

Step-by-step explanation:

The importer needs to make the payment in the VND each time so the importer may enter into hedge to protect himself from the appreciation of the VND against the dollar, now if the importer enters into the forward contract of the hedge and he come across the reverse situation that means the VND is depriciating that means if the hedger would not have entered into a forward contract then they would have benefited more.

Lets convert above above rate in per VND rate to understand better.

E_USD/VND = 1/21000 = 0.000048

F_USD/VND = 0.000047

Ee_USD/VND = 0.000045

so as we can see above if we had enter into a hedge contract we have to pay the 0.000047 per VND and if we would not have enter into the contract we would have to pay the 0.000045 per VND hence cost of Hedging is 0.00002 USD per VND.