[kwokjoanne]

Thank you for your reply!!

I have watched the chapter again, I really misunderstood about CAP and FLOOR before.

Is the below sentences correct?

Borrow money:
Buy Put option (Cap) – pay premium – choice of exercise by us
Sell Call option (Floor) – receive premium – choice of exercise by buyer

Deposit money:
Buy Call option (Floor) – pay premium – choice of exercise by us
Sell Put option (Cap) – receive premium – choice of exercise by buyer

Also, no situation will exercise both Put and Call, right?
And Gain / Loss is different between futures price and exercise price?

Thank you for your help again!

[kwokjoanne]

Understand, thank you!!

[kwokjoanne]

@johnmoffat said:
The two will give the same answer and you can use either in the exam.

When buying or selling futures, you don’t convert anything – you buy or sell at whatever the futures price is.

Since I buy $ futures, I need to use the spot rate at $1.1585?

[kwokjoanne]

But the spot rates on today is $1.1585 – $1.1618 per €1, if I use the spot rate of $1.1618:

$1.1618/€1 = 1/1.1618 = €0.8607/$1

Basis is 0.8656 – 0.8607 = 0.0049, and the unexpired basis is 0.0049/4 = 0.0012.

Lock-in rate = 0.8656 – 0.0012 = 0.8644

Why do I get the different answer if using the spot rate at $1.1618?

[kwokjoanne]

Is the apportion between March and June futures prices always same as the lock-in rate?

If yes, should I use the apportion calculation to find out the lock-in rate in ACCA examination?

And I have a few confusion on choosing the spot rate…

Buy futures: convert the spot rate at 1.1585
Sell futures: convert the spot rate at 1.1618

Is it correct?

Thank you!

[kwokjoanne]

Is it correct for below statements?

If question provides June futures price at the date of the transaction, it is the selling price of future. Then, the answer needs to calculate the profit / loss by the difference of buying price and selling price on June futures.

However, the question does not provide the futures price at the date of the transaction, we need to calculate the lock-in rate, and the rate includes the profit / loss from the future. Therefore, the rate x no. of contract = net receipt.

If the question provides:
(1) Future price now & the date of the transaction -> Sell & Buy / Buy & Sell -> Profit / loss = Difference x no. of contract
(2) Future price now only -> Lock-in rate -> Net receipt

Thank you for your reply.

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