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For eg:
Today is 1 march.
Payment will come in 6 months.
Forward rates.
30 march=1.3610
30 june= 1.3550
30 sept= 1.35001. Future estimated rate: 1.3610-((1.3610-1.3500/6)×1)=1.3592
Or
2. Future estimated rate: 1.3550- ((1.3550-1.3500)/3)×1)= 1.3533
Sir I wanna ask you that which one of the above following calculation of future estimated rate is correct. 1 or 2?
Sorry sir let me correct , the above rates that are 1.3610, 1.3550 & 1.3500 are future rates.
Neither are correct!!
The lock-in rate in 5 months is either:
1.3610 – ((1.3610 – 1.3500) x 5/6) = 1.3518
or
1.3550 – ((1.3550 – 1.3500) x 2/3) = 1.3517
The difference is due to rounding and is irrelevant.
Sir in exam I have calculated future estimated rate in a wrong way so is it a major or a minor mistake?
It depends what you did wrong and how many marks were allocated to that section.
Ok sir well the question carried 11 marks and asked about the hedging techniques so I wrote about three techniques forward,currency future and option. Future estimated rate was part of currency futures. So it is a minor I guess?
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