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(Solved): Hedging Examples A US company will pay \( 10 \) million for imports from Britain in 3 months and ...
Hedging Examples A US company will pay \( £ 10 \) million for imports from Britain in 3 months and decides to hedge using a long position in a forward contract An investor owns 1,000 shares currently worth \( \$ 28 \) per share. A two-month put with a strike price of \( \$ 27.50 \) costs \( \$ 1 \). The investor decides to hedge by buying 10 contracts
Expert Answer
These are example on how you can hedge with derivatives. Hedging means reducing or eliminating risk. In the first example, the US company needs to make a payment of GBP 10 M to a company in Britain. This payment is in GBP. The US company’s home curre