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The probability that a forward hedge will outperform the Money Market Hedge depends primarily on market conditions and changes in exchange rates. In order to assess this, one must first calculate the current spot rate (the exchange rate of two currencies at which they can be exchanged immediately). This figure is then compared with the expected future value of the receivable – taking into account any factors such as interest rates or inflation. Finally, by considering both the cost of hedging using forwards vs. money markets and potential risks associated with each approach, one can make an informed decision about which option is more likely to produce superior results.
In terms of your specific situation – where you’re trying to hedge a 11 million euro receivable due in one year – it’s important to consider how much this amount could change over time given current market conditions. If there is low risk that exchange rates may fluctuate significantly during this period, then it might not be necessary to employ a forward hedge as its costs would outweigh potential gains from doing so. However, if there are some indications that currency values may shift substantially before repayment occurs, then a forward contract might be worth considering as its insurance against these changes could make up for any transaction fees incurred.
Ultimately, while predicting outcomes when hedging foreign exchange transactions can prove challenging at times due to fluctuating market forces – properly analyzing available options and assessing their effectiveness beforehand can help maximize returns and minimize losses.