in this question, the manager just balanced the portfolio with a full hedge. but then she recieves a notice of a big investor willing to do a large withdrawal.
if we take an example of a the portfolio AUD 10M long, a full hedge is to short AUD 10M Forward.
if the size is reduced to say AUD 5M after the withdrawal, the hedge should also be reduced.
but the given solution states that the manager should do nothing after the notice of withdrawal.
can somebody help me on this please?
The withdrawal has only been announced so it’s not taken place yet. Check out the prior post.