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Hi John,
Quick question:
If I can point your attention to the ‘March/June 2016 Sample Question Paper’ on ACCA website for AFM (P4) – Question 1 b. (ii) :
Regarding the Futures Calculation. I am not quite sure how they have come to the 0.8650 for the expected futures price. I have tried calculating this using your method shown in the lectures but I think what is throwing me off is the fact that the rates for futures and the spot are quoted differently.
If you could explain I would be really grateful.
Appreciated!
You need to first convert the spot rates to get them the same way round as the futures quotes.
So, if you use the mid-market spot of 1.16015, then expressing it as € per $ is 1/1.16015 = 0.8620.
Then you can continue in the normal way. The current basis is 0.8656 – 0.8620 = 0.0036.
This ends up giving a lock-in rate of 0.8647, which is slightly different from the printed answer, but will still end up getting full marks.
Right. Fantastic. This is what I did and I was worried because I was getting a different answer to the examiner’s 0.8650.
Your lectures videos are brilliant, and you teach with so much enthusiasm, it really was a joy to learn this material for AFM from you.
It’s very much appreciated.
All the best.
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