There’s a bluebox about executing a hedge - specially the actions required to roll an existing short forward position.
Hedge #1 repurchases the existing short position at the spot rate and uses the mid-market quote of 10.81 - that’s fine, makes sense
Hedge #2 repurchasing the existing short position at the spot rate but uses the bid side, instead of mid-market quote stating the currency is the base currency so they use the bid.
Why are they using the bid in one case and the mid-market in the other?
Because hedge # 1 is matched swap and hedge # 2 is unmatched swap. in unmatched swap, you do not take the mid point of the spot rate…but remember in both the cases, you take the bid side of the forward points.
Say you have 500k GBP hedged against USD. Market remains calm and your investment is still 500k GBP at the expiration of the first hedge, then you roll over the same amt to hedge (matched swap)
if market value changes to $600k, now u have different amount to hedge at expiration. This is unmatched or mismatched swap.
If a trader wanted to adjust the size of the currency hedge (i.e., the size of the outstanding forward position), the forward leg of the FX swap can be of a different size than the spot transaction when the hedge is rolled. Continuing the previous example, if the trader wanted to increase the size of the long-GBP position by GBP500,000 as the outstanding forward contract expires, the transactions required would be to (1) sell GBP1,000,000 against the CHF spot, to settle the maturing forward contract; and (2) buy GBP1,500,000 against the CHF forward. This would be a mismatched swap.