Costs of hedging through forward contract
Discuss and compare the costs of hedging through the forward contract and the options contract.
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There exists no up-front cost of hedging by forward contracts. In case of options hedging, though, hedgers must pay the premiums for the contracts up-front. Cost of forward hedging, though, can be realized ex post when the hedger regrets his/her hedging decision.
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Banks find it essential in order to accommodate their client’s requirements for buying or selling foreign exchange forward, in several instances for the hedging purposes. How the bank can eliminate the exposure of the currency it has made for itself by acc
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