Benchmark Rates are Weighted Averages of the relevent Moving Average, the
Best, Mid and Worst Case scenarios.
Greater weights are
assigned to the Mid Rate, and to the Best/ Worst Rate depending on the
The rationale is to combine Market
History (through the Moving Averages) and the Market Forecasts (Best, Worst,
arrive at a Benchmark, so as to
cover all possibilities, leaving the least room for bias
The Benchmark is NOT a forecast. It
encapsulates all possibilities. Based on that, we also figure out possible
deviations. These then help us plan the Hedge Ratio and Strategy To put it
another way, if you achieve the Benchmark Rate for your exposures
you are achieving a mixture of all
the possible rates envisaged.