Hello,
Can I solve for futures using lock in rate like this:
=96.16+0.18=96.34
100-96.34=3.66
=3.66+0.8=4.46
hence 4.46/100*37*1000000/400= 412550?? which is the net cost
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Alecto CO Dec 11
4y ago#1Yes, that would get full marks but to be safe you should also state that there is an over hedge (because we had to go for 37 contracts).
Thank you, COuld you please help me understand Examiner comments ''The 94.25 option is marginally lower than the futures outcome under both scenarios but may be preferable if the base rate rises higher than 5.41%, the point at which the option would not be exercised.''
In the mentioned article: https://www.accaglobal.com/my/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/basis-risk.html
I don't understand where does 5.41% come from??
4y ago#3For the option not to be exercised, the future price will have to be less than 94.25. The equivalent interest rate will be 100 – 94.25 – 0.34 (the basis) = 5.41%
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