Not fully understand below question. Should it be selling KRW agn EUR fx forward to hedge back to EUR? Why it’s a long forward in the KRW? Thanks.
Kaplan, currency management, Q8
Jane Simms manages a German portfolio and has a 1,000,000 long hedge position in South Korean won (KRW) that is about to come due. In other words, she has a long forward in the KRW. The current spot exchange rate is EUR/KRW 0.00067/0.00068. The forward points for a three-month forward contract are –1.2/–1.1. She expects the KRW to depreciate significantly and has the authority to increase or decrease the hedge size by 10%. Explain whether she will increase or decrease the size of the hedge and the forward exchange rate at which she will contract.
Kaplan, currency management, Q8
Jane Simms manages a German portfolio and has a 1,000,000 long hedge position in South Korean won (KRW) that is about to come due. In other words, she has a long forward in the KRW. The current spot exchange rate is EUR/KRW 0.00067/0.00068. The forward points for a three-month forward contract are –1.2/–1.1. She expects the KRW to depreciate significantly and has the authority to increase or decrease the hedge size by 10%. Explain whether she will increase or decrease the size of the hedge and the forward exchange rate at which she will contract.