Reading 19 Bid & Ask (Executing A Hedge)

CFA Level III Portfolio Management
#1

On page 413 - bridge problem Executing a Hedge. Can someone please explain why they’re using the ASK in the first problem and then the BID in the second part?

#2

  1. We are short JPY. We are now rolling over our forward contract with a SWAP. In order to do this, we need to buy the JPY at the near leg of the SWAP and sell the JPY at the far leg. Selling the JPY in our convention (JPYHKD, so HKD is the base and JPY the price), means we have to select the ask price --> we are selling AGAIN (because we are prolonging our short position) JPY forward, meaning we BUY HKD forward. Therefore, we are using the ask side.

  2. Pretty much the same concept as 1). Here we have HKD/EUR though and we are selling again EUR forward. Therefore, we use the BID side.