[Ashan]

Thanks John, that’s very helpful.. Appreciate it 🙂

[Ashan]

Will do John, thanks..

Regarding this same question using the full way you mentioned that the results will be the same, this is what I came across John, could you please let me know whether this is correct:

Payment of $5,060,000 in 4 months
No. of contracts – 38
Spot Rate – $1.0635 per CHF1
125,000 Euros contract size (I assumed the tick value would be 0.01% or it should be)
3 month expiry – 1.0647 ($ per CHF 1)
6 month expiry – 1.0659 ($ per CHF 1)

So this is what I did, the question does not mention about the 4 month futures rate so if I used the lock in rate as you mentioned it, it would be 1.0651.

Therefore the gain or loss on the futures would be 38 x (125,000 x 0.01%) x Number of ticks
Number of ticks would be = 1.0659 – 1.0651 = 0.0008
So the loss on futures would be 38 x 12.5 x 8 = $3,800
$5,060,000 -$3,800 = $5,056,200
Due to the unavailability of the spot rate I used the 4 month futures rate to convert it –
$5,056,200 / 1.0651 = CHF 4,747,160
This result is CHF 3,568 less than what the examiner had achieved.
Is this the correct methodology John?

Thanks a bunch

[Ashan]

Thanks John, will be looking forward to the lock-in-rate lecture or the written explanation 🙂

[Author]

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