[Liam]

Hi John,

Thanks very much for the quick reply. It’s clicked with me now.

Ah I see, so there probably is a lot more questions on foreign exchange risk but they just haven’t been published. The kaplan revision kit that I have, has a lot more interest rate risk questions than foreign exchange risk. I will have a look at the BPP kit to see is there more questions in there.

Thanks as always.

[Liam]

Hi John,

In relation to the above question for part (c), we are asked to work out the futures position after each day on 1 March, 2 March and 3 March.

I understand that you have to compare the opening futures position with the closing futures position and determine whether a gain or loss has occurred depending on whether you have bought or sold futures initially. What I don’t understand in this question is when calculating the gain or loss, it is calculated as follows:

Difference in futures prices / tick size (1 March (1.1422 – 1.1411)/0.001) to give movement in ticks (12) X no of contracts (81) X $20.

What does the $20 above relate to?

Any help on the above would be much appreciated.

I also note that there doesn’t seem to be many exam questions relating to managing foreign currency exchange risk, maybe two or three that I can find. The examiner seems to focus a lot more on managing interest rate risk. I guess I’m just a bit confused on this as it’s difficult to get comfortable on foreign currency exchange questions when there are so few.

Thanks for all the help. I would be lost without your lectures.

[Author]

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