Question 3 - Set up

In this lesson

1. 0:00 Gorgoroth question overview and requirements
2. 1:30 Understanding the transaction details and hedging data
3. 5:12 Planning your approach to part A calculations
4. 6:41 Structuring your conclusion and recommendations
5. 7:00 Part B: Economic risk and Treasury function

About this lesson

The question requires two distinct tasks: a detailed calculation of hedging strategies using forwards, futures, and options to manage a net US dollar exposure (paying $14.5 million and receiving $37.4 million on 31 August), and a discussion of the Treasury function's role in managing economic risk. You'll learn how to structure your approach, allocate your time effectively (approximately 30 minutes for the 15-mark calculation and 10 minutes for the 5-mark discussion), and work through the mechanics of each hedging instrument. Key skills covered include netting off transactions, setting up futures contracts with basis workings, calculating option premiums, handling contract rounding and partial hedges using forwards, and formulating a reasoned recommendation to management. The video emphasises the importance of time management and ensuring you leave sufficient time to complete both the detailed calculations and the discussion element, plus a concluding recommendation on which hedging method best suits the company's needs.

Duration: 8m