First of all thanks for being here helping students around the world. My question relates to the future deal as discussed above. You have converted the original transaction but have not closed the future deal. Are we not supposed to include the gain/Loss on futures??? Thanks again for helping us
If you are meaning the question that I am working through in this lecture, then click on the button that says “ACCA P4 Revision Lectures” immediately above the video.
Thanks so much for your efforts and time supporting student community.
Just some comment regarding the second Revision lectures question other users might be useful too. I could not find the question “ACCA P4 Question 1 June 2014 ACCA Exam” in the BPP revision kit book (as it was marked on Revision lecture) but I did find it on the ACCA web site as “Specimen Exam applicable from September 2018”.
Hello, I鈥檓 sitting AFM exam in March 2020 and I wondered whether I could obtain a downloadable copy of June 2014 exam paper as they no longer available on ACCA website.
Dear John, thank you for your effort to help us past his exam. But past exams from 2013 are no longer available at ACCA pages. Could you possibly share ito us via opentuition websites? Or at least share names of the questions, they probably are part of Practise & Revision Kit. Many thanks. Mon
hi john In your lecture on lock-in-rate , you said when we calculate lock.in rate, we will deduct expired basis from current spot and add unexpired basis to future price, so why in CMC june 2014 question we add expired basis. plz explain me, thnks
The current spot rate and current futures price will always move closer together, and therefore the lock-in rate will be between the two. You add or subtract depending on which gives a lock-in rate between the two.
Hi for calculating the futures why didnt we have to work out the profit made between the selling and buying rate? or is this not relevant when you work out the lock in rate? thanks
The lock-in rate gives the net effect of converting at spot together with gain oarless on the futures. So yes – the calculation of the gain or loss on the futures is not relevant when using the lock-in rate.
Hey, John great lecture. In this question, I have assumed that Switzerland’s inflation is 3% and multiplied it with 3 to get US inflation rate. After this, I calculated spot rate using purchasing power parity. Using that rate I found at the futures price in 4 months time by subtracting basis from calculated spot rate. The final futures answer gives me a difference of CHF 2084. So will I get marks for it?
Provided you stated all your assumptions, you would get some marks, but you would certainly not get full marks – what the examiners answer has done is correct.
And also in my answer, I didn’t exercise the option as the spot rate that I had calculated was greater than the exercise price. Will i get marks for that too?
when you calculate the lock-in rate, you used 1.0635+0.0016=1.0651, why shouldn’t I use 1.0635+0.0008=1.0643 or 1.0659-0.0016=1.0643. I’m confused when should I use the difference 0.0016 and 0.008. Can you please explain? Thanks.
You either take the current spot rate and adjust by the expired basis: 1.0635 + (4/6 x 0.0024) = 1.0651 or, alternatively, you take the current futures price and adjust by the unexpired basis: 1.0659 – (2/6 x 0.0024) = 1.0651
(As to whether you add or subtract, it is whichever way makes the lock-in rate in between the current spot and the current futures price.)
It doesn’t matter – all you have to remember is that spot and future will get closer together. If current spot is higher than current future then it will stay higher. If current spot is lower than current future then it will stay lower.
Hi. When calculating the number of contracts, can we use the lock in rate of 1.0651 to convert the 5.06m to CHF? Or do we have to use the futures price of 1.0659?
@Mr.Moffat re lockin rate – would it be acceptable to use banks forward rate for the future rate estimation and then calculate payment on the spot market plus loss on future market instead of using a lockin rate? thanks in advance
No – they are two different things. It would not lose you all of the marks, but even so you should not do that unless there was no other information available.
All our resources are free of charge, and everything that we currently have is already available. More lectures going through past exam questions will be added when I have the time.
Thank you sir for allocating your time and effort. I have a quick clarifation on how the future basis calculated. In the lecture slides this is calculated as (Future price – spot), but you have taken as spot-future price. is there any specific reason for this? Appreciated if you could help me on this.
It doesn’t matter which way round – the difference will be the same and it is the difference that matters. As the basis (the difference) reduces, if spot is higher than futures it will always be higher; if spot is lower than futures then it will always be lower.
Thank you so much for all your help John and OT team. P4 is my last exam for ACCA. I hope I can pass this in first attempt. I have always used OT exclusively without any college tuition so far.
Hi john.
First of all thanks for being here helping students around the world. My question relates to the future deal as discussed above. You have converted the original transaction but have not closed the future deal. Are we not supposed to include the gain/Loss on futures??? Thanks again for helping us
Hi Team,
Where can i get the reveison papers to download?
Thanks
If you are meaning the question that I am working through in this lecture, then click on the button that says “ACCA P4 Revision Lectures” immediately above the video.
Hello sir,
Thanks so much for your efforts and time supporting student community.
Just some comment regarding the second Revision lectures question other users might be useful too.
I could not find the question “ACCA P4 Question 1 June 2014 ACCA Exam” in the BPP revision kit book (as it was marked on Revision lecture) but I did find it on the ACCA web site as “Specimen Exam applicable from September 2018”.
Feel free to delete my comment if not relevant.
Thanks again and best wishes,
Sandra
The second question is as Specimen in the latest Revision kit also.
Sandra
But both the question and answer appear on the index page for “Revision Kit Live” and can be downloaded.
Hello, I鈥檓 sitting AFM exam in March 2020 and I wondered whether I could obtain a downloadable copy of June 2014 exam paper as they no longer available on ACCA website.
Thank you
Although Question 1 (and answer) is available to view on our website, we cannot make them downloadable because they are copyright of the ACCA.
You should have a Revision Kit from one of the ACCA approved publishers and it is probably included there.
Thank you for your prompt response.
I鈥檒l took up for it in my revision kit.
Thank you for your help. D
You are welcome 馃檪
how did we get 1.0677 on the forward rate
It is given in the question (note (i) under “over-the-counter products” at the end of the question).
Dear John, thank you for your effort to help us past his exam. But past exams from 2013 are no longer available at ACCA pages. Could you possibly share ito us via opentuition websites? Or at least share names of the questions, they probably are part of Practise & Revision Kit. Many thanks. Mon
Thanks for that – I will arrange it 馃檪
hi john
In your lecture on lock-in-rate , you said when we calculate lock.in rate, we will deduct expired basis from current spot and add unexpired basis to future price, so why in CMC june 2014 question we add expired basis.
plz explain me,
thnks
The current spot rate and current futures price will always move closer together, and therefore the lock-in rate will be between the two. You add or subtract depending on which gives a lock-in rate between the two.
You can find lectures working through the whole of this question linked from the following page:
https://opentuition.com/acca/p4/acca-p4-revision/
Hi for calculating the futures why didnt we have to work out the profit made between the selling and buying rate? or is this not relevant when you work out the lock in rate? thanks
The lock-in rate gives the net effect of converting at spot together with gain oarless on the futures. So yes – the calculation of the gain or loss on the futures is not relevant when using the lock-in rate.
Hey, John great lecture. In this question, I have assumed that Switzerland’s inflation is 3% and multiplied it with 3 to get US inflation rate. After this, I calculated spot rate using purchasing power parity. Using that rate I found at the futures price in 4 months time by subtracting basis from calculated spot rate. The final futures answer gives me a difference of CHF 2084. So will I get marks for it?
Provided you stated all your assumptions, you would get some marks, but you would certainly not get full marks – what the examiners answer has done is correct.
And also in my answer, I didn’t exercise the option as the spot rate that I had calculated was greater than the exercise price. Will i get marks for that too?
I don’t know – I can’t see your answer 馃檪
Probably not.
when you calculate the lock-in rate, you used 1.0635+0.0016=1.0651, why shouldn’t I use 1.0635+0.0008=1.0643 or 1.0659-0.0016=1.0643. I’m confused when should I use the difference 0.0016 and 0.008. Can you please explain? Thanks.
You either take the current spot rate and adjust by the expired basis:
1.0635 + (4/6 x 0.0024) = 1.0651
or, alternatively, you take the current futures price and adjust by the unexpired basis:
1.0659 – (2/6 x 0.0024) = 1.0651
(As to whether you add or subtract, it is whichever way makes the lock-in rate in between the current spot and the current futures price.)
OK now I am confused.
1.0659 – (2/3 x 0.0024) isn’t giving me 1.0651
1.0659 – 0.0016 = 1.0643???
Is something wrong with my calculators?
I mistyped – it should be 2/6 (not 2/3) for the unexpired basis.
(Have you not watched my free lectures on the lock-in rate?)
can we also say:
closing future price = current future price + basis at 4 months? (and we ignore the sign of the basis)
Yes (the examiner shows both in his answer and either is fine).
He should not have called this the closing futures price – it is the lock-in rate.
The sign does matter in that the futures price and the spot rate will always get closer together – this determines whether you add or subtract.
the sign has been bothering me …. up to now since closing spots were always given.. i did not have a problem….but now.. if i set up the table as
Spot —1.0635
future—1.0659 ———this will give me (0.0024)
but if i setup the table as
future — 1.0659
spot—— 1.0635 ………… this will give a positive sign
what is on to do??
It doesn’t matter – all you have to remember is that spot and future will get closer together.
If current spot is higher than current future then it will stay higher. If current spot is lower than current future then it will stay lower.
Hi. When calculating the number of contracts, can we use the lock in rate of 1.0651 to convert the 5.06m to CHF? Or do we have to use the futures price of 1.0659?
I’m sorry for the question, i got what you did in the video.
Thank you 馃檪
You are welcome 馃檪
Hi John,
Thank you for the lecture very well explained.
I got one question. Why did you add the basis of 0.0016 to the current spot and not deduct it??
What is the reason behind?
The spot and the futures price move closer together over time, whichever is currently the higher of the two will remain the higher of the two.
@Mr.Moffat re lockin rate – would it be acceptable to use banks forward rate for the future rate estimation and then calculate payment on the spot market plus loss on future market instead of using a lockin rate? thanks in advance
No – they are two different things. It would not lose you all of the marks, but even so you should not do that unless there was no other information available.
Dear Mr John,
i want to access the full lecture video of the P4 pass papers. Is there any option to pay and get access to these material?
BR
Saajith
Past papers 馃檪
All our resources are free of charge, and everything that we currently have is already available. More lectures going through past exam questions will be added when I have the time.
Thank you sir for allocating your time and effort.
I have a quick clarifation on how the future basis calculated. In the lecture slides this is calculated as (Future price – spot), but you have taken as spot-future price. is there any specific reason for this? Appreciated if you could help me on this.
It doesn’t matter which way round – the difference will be the same and it is the difference that matters.
As the basis (the difference) reduces, if spot is higher than futures it will always be higher; if spot is lower than futures then it will always be lower.
Thank you so much for all your help John and OT team. P4 is my last exam for ACCA. I hope I can pass this in first attempt. I have always used OT exclusively without any college tuition so far.
Thank you for your comment, and the best of luck tomorrow from all of us 馃檪
Well Explained!!!
Thank you very much 馃檪
why are we not calculating profit or loss on futures?….
Because we have calculated the lock-in rate as I explain in the lecture. (If you need more on lock-in rates then there is a separate lecture on them)
Can this then apply to any question….ie we just calculate the Lock in Rate or is it because we were not given the spot rate in 4 months time?
Yes – it not given the future spot rate, then best is to calculate the lock-in rate.
Thank you for the clarrification
sorry*clarification
You are welcome 馃檪
really good lecture! thank u for explaining in detial
Hi Lecture when I calculate the contract size I get 3.7…. not 37…… what did I miss?
am getting 37.
actually 37.9 so 38