hedges aussie $$, page-2

hotlegs8693,

I promised to provide my response as well from IS.

To my initial question regarding hedges I was advised that the average price of the FX Hedges was a forward rate of 85.6 cents. I haven't seen this figure anywhere on HC so I guess this tidbit is relatively new.

I sent a further question where I restated to ask "At what Exchange Rate will the LAST FX Hedge be closed out.

Unfortunately, I am away from the email address from which I sent the question so if there is a reply it will have to wait until tomorrow.

HOWEVER, they are either being slack or coy or both. Here's why:

85.6 cents is the "Average Forward Price". The forward rate is well and truly above 92 cents right now as I type.

By inference then this figure is the average price based on the number or contracts not the weighted average price of the value of dollars we are talking about in the contracts. Otherwise all of the hedges would be closed out. I’ll explain by example:

Imagine you have two hedge contracts. One for errr $305 million and 1 for errr $2.2 billion. These two numbers should be familiar to you.

So there is a total of two contracts.

Contract 1 is taken out with a forward price of AUD/USD 90 cents.
Contract 2 is taken out with a forward price of AUD/USD 95 cents.

What’s the average Forward price based on the number of contracts? Yep, it’s 92.5 cents. Can you see that this is the way IS has answered my question and why they are playing coy?

In reality the weighted average Forward price is this:

$305,000,000 x 0.90 + $2,200,000,000 x 0.95/$2,505,000,000
=94.3912 cents.

This is the first reason we are not getting the proper answer. The second reason is why CER “agreed” to take FX hedges as that high an exchange rate with a related counter party. Can you see though that when everyone was awash with cash these were would be ridiculously out of the money and 10’s of millions of dollars would flow up to CNP from CER as an out of the money hedge? Thankfully with the board separation this won’t happen again….


I still feel that the hedge close-out is still relatively imminent however, but there are reasons I believe they are guarding this information and it has nothing to do with confidentiality and everything to do with CNP raking funds out of CER as the head-stock and counterparty.

A few of us are going to the AGM so this will probably become clearer. I am framing a question in my mind and you will know when you hear it if I get the opportunity to ask it.

I say this because I suspect the hedges will all close out at around 95 cents. I have no evidence for this please care to note. It is just my suspicion.

Cheers and good luck.