Hi,
I’m a bit confused regarding the blue box “Executing a Hedge” on page 423, reading 21 (Book #3).
In the hedge #2, why is the bid rate used to buy back EUR 8m to settle the outstanding forward transaction.
In my opinions, if we have entered into a contract to sell EUR 8m forward and want to settle this forward contract, then we should buy EUR 8m forward…and thus use the ask rate.
I do not understand why the fact that Yang is rolling the forward forward by selling an amount larger than EUR 8m has an impact on the settlement of the initial forward contract.