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Very useful lectures indeed..thank you..i could not find here lectures on SWAPS to hedge against excahnge risk…Why is it so??
We do not have lectures on everything – some topics you have to study yourself from out notes and from your books.
New lectures are added as and when we have the time.
If you have any specific question later, then please do ask
(but please realise that we are doing all this in are spare time after work!)
Thank you sir, Your lectures are very helpful..do we have lectures on Business Valuation?
No – sorry. However there is not much extra from what you will have learned for F9, and any extra techniques needed are covered in other chapters of the notes/lectures anyway.
Thank you sir
I have problem in calculating cross rate,
Example, Consider the following.
Spot……………………One year forward rate
Spot………………….. One year forward rate
Now, What is the cross rate for converting SF to Dollars?
My second problem lie in foreign Tax credit, I don’t know how to calculate the value for Foreign tax credits.
Thank you for your continue support.
1 SF will buy 2.298 GBP., and 1 GBP will buy 1.7985 USD.
So….1 SF will buy 2.298 x 1.7985 USD
With regard to tax credits, if (for example) tax has been charged at 25% in one country! and the profits are remitted to another country where the rate is 30%, then there is an additional 5% chargeable in this other country
Whether to buy Put Option or Call Option .I have tried to memorize following
US Company Receiving GBP (Any currency other than $)- PUT ( Always)
US Company Paying GBP ( Any Currency other than $)- CALL ( Always)
Non US Company Receiving – $ – CALL ( Always)
Non US Company Paying – $ – PUT ( Always)
Whether this is right way of doing and whether it would serve exam purpose.
Why do we convert the transaction at spot of 1.4100 when we are having the option and we can get the pounds at 1.4750?
The lecture explains this!
These are traded options and so you do not actually have the right to convert at the option rate. What happens is that you convert at the spot rate and then ‘claim’ on the options and so get back the difference.
Watch the lecture all the way through – it is all explained.
Oh ok.. I guess I missed that! Thank you so much!
Thank you to the tutor and Open Tuition for the wonderful lecture
However I have a q on the premium part.
The premium was initially established in $ and since the company in q is a UK company, the impact should be shown in Pound and thus the need for conversion to Pound arises. I understood that part. However why was the the conversion rate used $ 1.4850 (buying rate) and not $ 1.4870 (selling rate) since we are selling $ to receive pounds?
Thank you once again for a good lecture
Hey I understood your question. And its a good one btw What i believe is, since its a premium PAYABLE in dollars, we have to BUY dollars to pay for the premium. And therefore, in order to buy the dollars, we are using the Buying Rate (1.4850).
So in short, we can say, we are selling 5556 pounds to buy 8250 dollars I hope i made sense
Wahabna is correct – because the premium is in dollars, we need to buy dollars.
Hi Markn, Thanks for your explanation. I finally understand that the tutor said, when we exercise the option, we are actually claiming back $ from the option writer. So, the currency we hold now is $, we will sell $ to buy Pound. Therefore, buy rate of $1.4120 is used. Anyway, thank you so much.
Hi Estherpang87, the reason he uses 1.4120 is because we are receiving the pounds to offset against the amount we are convering to pay the $1m. Some tutors always advise us to choose the rate in which we receive less or pay more – it’s just an exam tip. Always choose a rate that is unfavourable to you…
Hi sir, in this example, when we calculate the amount attributable to option exercised, our working is [22 x 31250 x (1.475 - 1.4100)] / 1.4120 = 31649 pound.
In my opinion, the rate of 1.4120 is a buy rate. but in this case, we actually sell pound to buy $ to settle payment. Shouldn’t we use sell rate of 1.4100, instead of the buy rate of 1.4120?
Thank you sir.
Dear Tutor, is it assumed that premium payable to bank in USD that’s why we are using buying ex.rate in this example? Thank you
its realy hepful
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