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Dear sir,
I am facing a lot of difficulty solving the casasophia question, are exam questions usually in this manner? I haven’t had any problems solving alecto and swan and wardegul, however I am finding casasophia extremely difficult, is it likely questions with this much twist will come in exam?Now on to the doubt, dear sir:
1- when future spot rate is not given, we calculate using purchasing power parity, when that is also not given, then we assume future rates as future spot rates?
2- while solving the futures part, the examiner assumed that the future spot rate will be the current future rate and subtracted the unexpired basis from it, can we always make this assumption?
I’m finding this question and asteroid systems extremely difficult, hope you can help me sir. I have watched your lectures as well and I’m having a lot of difficulty with this question and asteroid systems.Thank you
This question was set by the current examiner (he took over in 2010) and so the same things can be examined again (although given the change in the exam format since then, any question now will be shorter than this one). However, don’t panic – remember that each bit of workings is marked separately and provided you make it clear what you are trying to do then you will still get more than the 50% need to pass, even if not of your calculations ended up being completely correct 🙂
1. If the future spot rate is not given (which is the most likely situation in the exams) then we use the ‘lock-in rate’. I do explain this in my lectures, but it gives the net effect of converting at spot together with any gain or loss on the futures.
2. Yes, except that it is not the future spot rate, it is the lock-in rate as explained above.
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