Sorry, I had meant that I had choosen the March Future with the future price of 9400. I am puzzled why In the ACCA answer, they buy the future at 92.96. [this is the part i) price where the future close price, but not for ii)]
My answer for the option profit is different from the ACCA answer.
My workings are as below:
Sell future at 9400 and buy at 9300. There is zero basis risk as my spot is 9400 which is also the same as my exercise price of March future option at 9400.
when interest rise by 100 basis point:
My option profit is [(94.00-93.00)/4] x 80 x…[Read more]
Thanks John for the quick reply. Really appreciate it.
I got 1.3639 from the below:
Spot is 1.3618 (right side “sell USD” as i am a Eur company and receiving payment)
My 5 mths future is price is 1.3698 thus my basis is 1.3698 – 1.3618=0.0080.
As we are receiving payment in 4 mths, we close out the future contract in 4 mths too. As the future…[Read more]
For this question, my answer differs from the ACCA answer provided. Can you please advise whether if my workings below is still correct?
To hedge against USD from strengthening against Eur therefore Buy 5 mths Future contracts @ 1.3689 as we are receiving payment.
No. of contracts = (USD20m/1.3698)/125,000 = 116.8 ~ 117…[Read more]