I got a question for anyone who can give me a hint.
My company singed a AUD/USD FX hedging last yr, saying we will buy USD tomorrow at 0.8532 however this rate is not attractive any more, so I want to either closeout the contract or extend for a further 3 months.
Wespac just told me I am able to extend this contract for 3 months however the cost of this will be approx. 66 forward points (subject to change depending on market movements). Because Australian interest rates are higher than U.S. interest rates the forward point calculations as a result are negative and ‘subtracted’ from the original rate.
My question arises as does bank always charge me for those basis points based on the rate I set initially with them or based on the spot rate? Do they charge every time whenever I extend the contract?
Thanks a lot.