The leveraged reverse knock-in forward

Problem: A Canadian exporter has been caught off side by the recent strength in the Canadian dollar.

Historically, the company’s policy has been to not hedge its foreign exchange risk as it relates to its US receivables. This policy has been effective as the Canadian dollar depreciated significantly versus the US dollar throughout most of the 1990s.

With the recent rally in the Canadian dollar from year-end levels of 1.5776 to its recent level of 1.4203, the company has been mandated by its board

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