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I would like to thank you for the notes and lectures, I have been preparing AFM with the help of it. I am bit confused with the logic behind while locking the rate using basis , the spot rate of 1.0292 is used , It would be great if you can clarify why did we take lower rate from spot rate
Thank you
The examiner has used 1.0292 because they are receiving CHF, therefore if they were converting a spot they would be selling CHF and buying US$ so it would be 1.0292 that would be used.
You could alternatively use the mid spot rate (as I do in my lectures). Although this would obviously give a different final answer, it would still get full marks.
If I have misunderstood your question (and therefore answered the wrong question 🙂 ) then please do ask again.
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