Forum Replies Created
- Posts
I passed AFM with 78%, finally qualified now. Well done to everyone who passed (the mark is irrleevant).
Keep trying to everyone who didn’t (question practice and time management was important for me)
202mR/5m was 40.4 contracts, rounded down to 40 contracts.
40 x 5m contracts was 200m.
Therefore amount unhedged was 2mR which was hedged using FRA.
I think thats the point. Its fine on a 27 inch monitor, you don’t get a 27 inch monitor in the real exam at the Pearson Vue UK locations anyway.
I dont think you needed to do any currency conversion to calculate the number of contracts needed. We were hedging a receipt of 202mR and the contract currency was in Rupees.
If i recall correctly, the premium on the option may have needed converting.
I think the idea about the FOREX swaps and currency swaps is more to do with what type of question you are trying to hedge/what benefit you are trying to achieve.
I think the idea of the Forex swap is to hedge relatively short term (a year or less). Which could to hedge a future reciept or payment and involves swapping a principle with a counter party.
The currency swap still involves the principle swap with a counter party but is mainly set up to lower the cost of borrowing (using the estimation that a company co is likely to be able to borrow at a lower rate domestically than an overseas company will and vice versa.
These kind if swaps are usually used when financing a significant overseas project that might last years. Theyll essentially benefit financially from the swap due to paying lower interest.
So the currency swap is no use use to hedge a receipt in a few months. At least I think that’s the idea. That’s the sort of stuff I wrote about anyway, and recommended that a Forex swap would be much more beneficial and the currency swap would be a better fit to the expected expansion projects – not the future rupees receipt.
Agree completely with the time and hassle of CBE. Frustrating as I really liked the CBE function on the foundation level exams as my handwriting is poor. Especially as they aren’t as time pressured than AFM.
You save 30 seconds using an auto sum ON EXCEL, then spend 1 minute shuffling round the exhibits and word processor and spreadsheet because the screen is too small to show all relevant data.
Why they can’t either give you two screens or a copy of the questions on paper to help time pressure is beyond me.
I think for the bond the market value was already calculated using the relevant spot yield curve for the year + Credit spread
For example
Time 1 – Interest – $7.5 * (1+Spot yield curve for 1 year bond + credit spread for that year)^-1
Time 2 – Interest – $7.5 * (1+Spot yield curve for 2 year bond + credit spread for that year)^-2
Etc etc. That gave market value or issue value of bond.
Then using you can repeat the same cashflows including the initial purchase of the bond at market value (thinking about things from the investors perspective.
But for the DCF do one at say 5% and one at say 10%, then plugging that IRR, I think gives you the YTM.
Largely agree with Danni, the software is diabolical considering its been around a few years now in the foundation level.
Whilst you may think that it saves time with the sums and formulas, which to be fair it does, all that tike saved is lost flicking back and forth through exhibits and stuff. There’s not enough screen space to have all relevant information in front of you.
Really they need two screens. One for the word processor and spreadsheet and the other for exhibits and requirements.
I could be wrong of course but I read the dividends in the Foreign NPV question just as confirmation that all would be remitted to the parent in the same year which those cash flows arose.
And again could be completely wrong, but for the yield to maturity, you calculate the PV of the bonds cashflows based on the spot yield curve and credit spread. Then to an IRR to workout the annualised Kd (YTM)
