
The average rate fadeout forward
PROBLEM: A European corporate is worried about the declining value of US$ earnings from its US subsidiary. These are translated back into euros at the average for the year and have fallen in value due to continued euro strength since the start of the year. The corporate would like to hedge the last three quarters’ US$ earnings against any further rise in EUR/USD.
In this case, the corporate would typically enter into an average rate forward strategy to hedge its US$ earnings. It would sell USD
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