ACCA P4 Risk Management, Foreign Exchange Futures, lecture 2a

Comments

1. serika says

   March 17, 2017 at 4:58 pm

   I have problems with the adding and subtracting of remaining basis risk in the furture rate of the closing date. When to add or subtract

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   • John Moffat says

     March 17, 2017 at 5:48 pm

     If the current futures price is higher than the current spot rate, then the estimated futures price on the date of the transaction will be higher than the expected spot rate.

     If the current futures price is lower than the current spot rate, then the estimated futures price on the date of the transaction will be lower than the expected spot rate.

     If you are referring to the lock-in rate (which is dealt with in a separate lecture), then, again, use the fact that the futures price and the spot rate will get closer together during the life of the future.

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2. alpha2006 says

   January 6, 2017 at 12:53 pm

   Hello John,

   Well, am bit confused between eg 8 and 9 spot rate.R is in the US and needs £800,000 on 10 August.
   Spot today (12 June) is: $/£ 1.5526 – 1.5631

   At the reference point in eg 8, you used 1.5631 to multiply because i think in the case of payment we should used the lower rate which is 1.5526? secondly why in eg 8 u multiply 1.5631 * 800000 and in eg 9 u divided it rather than multiplying it at the reference point stage… please help…

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   • siddiqui93 says

     January 6, 2017 at 2:15 pm

     In eg 8 R is in the US therefore it is the direct quote that’s why we multiply

     In eg 9 T is assume to be in UK therefore it is the indirect quote that’s why we divide.

     and secondly please make it clear

     In case of receipt: we receive the lower value either a quote is direct or indirect

     In case of Payment: we pay the higher value either a quote is direct or indirect

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     • alpha2006 says

       January 7, 2017 at 9:59 am

       Thank you sir…

     • alpha2006 says

       January 7, 2017 at 10:07 am

       sorry sir, can u still further break it for by giving examples. DIRECT and INDIRECT quote.

     • John Moffat says

       January 7, 2017 at 6:08 pm

       There is no relevance to the words direct and indirect! The examples in my lectures explain both.