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Hi sir,
In the BPP exam revision kit I have noted that in several cases the spot rate at the closing date of the future’s deal is assumed to the be the futures price at the opening date. In theory, if I were given the rates of inflation in respective countries would it be correct to use the purchase power parity to predict the closing spot? or should I still make the before-mentioned assumption?
Many thanks
Are you sure that they are not calculating the lock-in rate (which is what they normally should be doing if we are not given the spot rate at the date of the transaction)?
No they explicitly state that they make an assumption that the opening futures price is the closing spot rate.
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Yes Ive seen the same where the Future’s rate NOW was used as the spot rate at the transaction date to then you can determine the futures price. Also Ive seen the forward rate used if that information is given as the spot rate at the transaction date when no information is given about what will happen to the spot rate(usually they say +/- something)
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