FX hedging and derivative payoffs
Part of the Markets learning and recruiting path. Read the explanation and example, attempt the task, then open the self-check.
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Understand
A forward fixes future exchange terms. An option provides a right in exchange for a premium. Draw expiry payoffs before discussing risk. A hedge can reduce one exposure while introducing cost or opportunity loss.
Worked example
A call with strike 100 and premium 5 pays 20 when the underlying ends at 120, for net 15. At 90 it pays zero, for net −5.
Examples and numbers are educational, not employer questions, live market data or hiring criteria.
Practise and keep your output
Tabulate call payoffs and net returns at 80, 100 and 120, then compare hedging choices for an exporter.
Keep inputs and sources, assumptions, steps, results and uncertainties in your own document. Attempt independently before checking below.
After attempting: answer and self-check
Payoffs are 0, 0 and 20; net returns −5, −5 and 15. Separate premiums from payoffs. These are illustrative values.
Official channels and further reading
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