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Hi Sir,
Buryecs co Mar/Jun 2017
Q3 c) why the predicted exchange rate at year 3 is $ 7.6046 = €1?
Also, the paragraph had written exercise price $7.25 gives worst result than the swap even before the premium is deducted, becuz of the exchange rate being fixed on the swap back of the original amount paid.
What is the meaning of exchange rate being fixed on the swap back of the original amount paid???
It is calculated using the purchasing power parity formula and is €/$ 0.1315 which is the same as $/€ 7.6046 (1/0.1315)
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