Hedge optimisation under IAS39
Background: A company, listed on a European exchange, with the EUR as functional currency, regularly imports goods denominated in USD. To hedge its exposure to adverse movements in EUR/USD, it occasionally uses structured forwards.
The company is now looking at hedging its exposure for 2004, and is considering entering into a hedging strategy known as a knock-in forward. Considering its risk profile and budget level, the company finds that the optimal levels for this strategy would be as follows
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