Comments

  1. avatar says

    Thanks a lot sir. we appreciate your efforts to helps students. But sir Problem is that, in notes and books we have very basic example but in exam we are facing more complex question. how to handle this issue and from where we can find more material to practice.

    • Profile photo of John Moffat says

      The lectures – as with all courses – go through the techniques needed.

      The exam questions are not more complex in terms of the techniques, but certainly are more complex in terms of sorting through the information and deciding which techniques to use.
      You can only master this by practicing exam-standard questions (once, obviously, you are happy with the techniques involved and really understand them) and for this – as we make clear throughout the website for all the exams – you must have a Revision/Exam Kit from one of the approved publishers, and you must work through all of the questions properly and learn from them.

      If you have any problems with any of them (or with understanding the answers) then obviously ask in the Ask the Tutor Forum and we will try and help.

  2. Profile photo of christopheryaheya says

    Hi Sir,
    I have problem in calculating cross rate,
    Example, Consider the following.
    $/Pound sterling
    Spot……………………One year forward rate
    1.7985-1.8008………1.7726-1.7746
    SF/Pound Sterling
    Spot………………….. One year forward rate
    2.256-2.298…………2.189-2.205
    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.

    • Profile photo of John Moffat says

      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

  3. avatar says

    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.

    • Profile photo of John Moffat says

      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.

  4. avatar says

    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 :)

    • avatar says

      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 :D

  5. Profile photo of estherpang87 says

    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.

  6. avatar says

    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…

  7. Profile photo of estherpang87 says

    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.

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