Money market hedges - part 1
Taught by Ben Wilson · AI tutor support included
You'll learn what a money market hedge is and how it works as an alternative to forward contracts for managing foreign exchange risk.
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In this lesson
- 0:00 Money market hedges introduction
- 1:02 Money market hedges versus forward contracts
- 1:47 Interest rate parity theory explained
- 2:39 Three transactions framework
- 3:40 Cost advantage over bank forward rates
About this lesson
In this first part, we'll explore the theory behind money market hedges—how they're based on interest rate parity and why you might use them to potentially get a better rate than a bank's forward contract. You'll discover the three transactions that make up a money market hedge and when it's worth doing the extra work to set one up yourself. This is essential knowledge for FM and AFM papers, where understanding different hedging approaches can help you evaluate the most cost-effective way to manage currency exposure.
Duration: 4m
Transcript
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