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2016 June exam

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › 2016 June exam

  • This topic has 31 replies, 7 voices, and was last updated 7 years ago by sajini.
Viewing 25 posts - 1 through 25 (of 32 total)
1 2 →
  • Author
    Posts
  • September 4, 2016 at 8:27 pm #337771
    yaseen
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    assumed that the date today is 1 March 2016

    .Sale of equity investment in the European country
    It is expected that Lirio Co will receive Euro (€) 20 million in three months’ time from the sale of investment

    The following exchange contracts and rates are available to Lirio Co.
    Per €1
    Spot rates $1·1585–$1·1618
    Three-month forward rates $1·1559–$1·1601

    Currency futures (contract size $125,000, quotation: € per $1)
    March futures €0·8638
    June futures €0·8656

    how to calculate expected futures price (based on a linear narrowing of
    basis)

    September 5, 2016 at 4:03 am #337803
    yaseen
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    plz help me solve dis

    September 5, 2016 at 4:03 am #337804
    yaseen
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    @yazin1992 said:
    assumed that the date today is 1 March 2016

    .Sale of equity investment in the European country
    It is expected that Lirio Co will receive Euro (€) 20 million in three months’ time from the sale of investment

    The following exchange contracts and rates are available to Lirio Co.
    Per €1
    Spot rates $1·1585–$1·1618
    Three-month forward rates $1·1559–$1·1601

    Currency futures (contract size $125,000, quotation: € per $1)
    March futures €0·8638
    June futures €0·8656

    how to calculate expected futures price (based on a linear narrowing of
    basis)

    September 5, 2016 at 8:09 am #337829
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Please don’t repeat the same question (we always answer within 24 hours, but we do not sit permanently at the computer – I do have to sleep 🙂 )

    March futures finish on 31 March, and June futures finish on 30 June – June finishes 3 months after March.
    The receipt will be in 3 months time and so is on 1 June which is 2 months after 31 March, and so the examiner has taken the March futures price and added on 2/3 of the difference between the March and June futures prices, to adjust for the extra 2 months (on the assumption that it changes linearly).

    Strictly better would have been to calculate the lock-in rate (which the examiner wrote was acceptable) and there is a free lecture on here explaining how to calculate lock-in rates.

    September 5, 2016 at 8:19 am #337834
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    So to get the lock in rate for this question, as per my working

    spot rate minus June futures —-1.1585-0.8656
    =0.2929*2/4
    =0.14645

    final answer doesn’t work here?
    one thing i notice here is
    spot rate quoted in $/euro
    futures quoted in Euro/$
    could u pls help me out

    September 5, 2016 at 8:30 am #337835
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    premium payable is 674250 euros so to convert into dollars we pay premium so buy dollar rate is 1.1585 is that so??

    September 5, 2016 at 9:25 am #337844
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    How do u get Annual dividend per share after transfer $0·0595????

    September 5, 2016 at 3:22 pm #337918
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You convert a spot rate quoted as $ per €, to a € per $ quote by taking the reciprocal.
    So the spot rate € per $ = 1/1.1618 to 1/1.1585 = 0.8607 – 0.8632

    So the basis = (0.8656 – 0.8632) x 1/4 = 0.0006

    So the lock-in rate = 0.8656 – 0.006 = 0.8650

    September 5, 2016 at 3:26 pm #337921
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    For the premium the rate is 1.618 (as per the answer!) – they are buying €’s.

    September 5, 2016 at 3:28 pm #337922
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    For the dividend per share, you divide the total available ( $4.76M) by the number of shares ( $80M)

    September 5, 2016 at 4:39 pm #337955
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    Finding the reciprocal is ryt but why minus both the spot rates 0.8607 – 0.8632?
    Why 1/4, it should be 2/4 ryt transaction date is 1may then untill end of june so overall from 1st march to june there are 4 months then it should 2/4 ..???????????

    for the premium, can u elaborate a bit??? pls1.1618, can I assume for receipts it should be the second rate?????
    we are receiving euros so we need to convert into dollars we need to use 1.1585 ryt?
    im confused here pls help me out?

    September 5, 2016 at 5:45 pm #338039
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    First – I was not minusing at all.
    Writing 0.8607 – 0.8632 is the normal way of showing the two rates (for buying and selling).

    Second – from now (1 March) to the date of the transaction is three months.
    From now (I March) to the end of the June future (30 June) is 4 months.
    Therefore at the date of the transaction the basis will be 1/4 of what it is now.

    The premium is not receiving anything – you pay a premium!

    September 5, 2016 at 6:05 pm #338056
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    Q1)
    from 1st march to 3 months its 1st may ryt then end of may and end of june equals 2?

    Q2)
    We have to pay premium i know that but the amount as per question is in euros so from here can u explain me pls, I can understand everything how things work this small bit confusing me?
    why do we take 1.168 instead of 1.1585???
    they buy euro u mentioned this earlier can u get me to the end pls??

    September 5, 2016 at 6:07 pm #338059
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    in yr answer u minus (0.8656 – 0.8632) we should first minus from spot rate to the futures ryt?

    September 5, 2016 at 6:12 pm #338065
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    we anyway have to pay premium so since we are receiving in Euro we buy euro buy rate and pay is that so???

    September 5, 2016 at 6:37 pm #338077
    yaseen
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    lock in rate = future price + change in basis ? or it is minus

    September 5, 2016 at 6:55 pm #338081
    yaseen
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    how to know the Net receipt on futures without knowing the future spot rate?

    September 5, 2016 at 7:41 pm #338089
    yaseen
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    what is the logic in converting premium to spot sell rate instead of buy rate

    September 5, 2016 at 8:19 pm #338100
    syedshah000
    Member
    • Topics: 19
    • Replies: 30
    • ☆

    Hay you ask too much but actualy knows very little about syllabus.

    First learn your course book then if you face some problem ask John.

    They are here to help you my frend not to teach you everything.

    Hope you understand and care next time and please dnt try to take unfair advantage of their support.

    September 6, 2016 at 5:09 am #338146
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    6shahir:

    Q1 3 months from 1 March takes you to 1 June not 1 May !!

    Q2 The exchange rate is always the one that is worst for us (it is the bank that makes the profit!!). Converting the premium at 1.585 would mean us paying less!

    Q3 The current basis the difference between the current spot and the current futures. The basis reduces as so the lock-in rate will always be between the current spot and the current futures.

    Q4 The premiums are quote in Euros and so we pay in Euros

    September 6, 2016 at 5:12 am #338147
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    yaseen

    1. The current basis the difference between the current spot and the current futures. The basis reduces as so the lock-in rate will always be between the current spot and the current futures. You add or subtract accordingly.

    2. We use the lock-in rate (we can predict the net effect). There is a free lecture explaining the lock-in rate.

    3. The premium is quoted in Euros and we are using the correct rate for buying Euros.

    September 6, 2016 at 10:00 am #338203
    6shahir
    Member
    • Topics: 202
    • Replies: 296
    • ☆☆☆

    Thnk u soo much Understood 🙂

    September 6, 2016 at 12:47 pm #338255
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You are welcome 🙂

    November 28, 2016 at 1:44 pm #352146
    Ibrahim
    Member
    • Topics: 41
    • Replies: 79
    • ☆☆

    pls, in this type of question of march/june 2016. can I still get full credit if i use mid market value where relevant so that i won`t bother my self from which is buy or sale rate? thanks

    November 28, 2016 at 2:58 pm #352185
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Almost certainly yes :-0

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