Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › FONDIR CO (DEC 2022)
- This topic has 5 replies, 4 voices, and was last updated 11 months ago by John Moffat.
- AuthorPosts
- June 3, 2023 at 1:58 pm #685943
How is the forward rate calculated? Why did they use the country base rates to calculate forward rates?
June 3, 2023 at 3:14 pm #685949Forward rates are always determined (in real life as well as in exams) by using the interest rate parity formula that is provided in the exam.
I do explain this (and the logic) in my free lectures.November 9, 2023 at 4:19 pm #694604How is premium calculated in (b) part
November 10, 2023 at 8:33 am #694623They are buying a call option at 84 and the premium given in the question is LL4 per $.
The total amount they are buying the option on is LL357m/84 = $4,250,000.
So the total premium payable is 4,250,000 x 4 = LL17m
This is converted to $’s at the current spot rate of 84.
December 1, 2023 at 5:59 am #695787Greeting Mr John
Hope you are having a good day.
with regards to this question, while calculating the forward rate using interest rate parity why have they divided both the interest rate by 3. it at all its months then it should be 4 rather than 3.
OTC forward rate 84.00 × (1 + (0.06 + 0.0060)/3)/(1 + (0.033 – 0.0030)/3) = 85.00 approx
Pls guide
December 1, 2023 at 8:12 am #695791There are 12 months in a year and so the 4-monthly interest rate is 4/12 of the yearly interest rate.
4/12 = 1/3 - AuthorPosts
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