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Assalam walaikum sir. peace be upon you. I wanted to know, how is the september futures price calculated in this question? Its 0.007985 US$ per Yen in the question but, in the answer its 125.23 Yen per US$. Thankyou
Pardon me sir, there is another thing in the same question that confuses me. You said in your lecture, that we should look at the contract currency (in this case Yen), and then we see whether the transaction involves buying or selling the contract currency. If it involves buying the contract currency, then we buy futures now and sell them later. If the transaction involves selling the contract currency, then we sell futures now and buy them later…. In KYT Inc. we have to make a payment in Yen, so the transaction involves buying the contract currency. But, our strategy is to sell futures now and buy them back later. Is it because the prices are quoted in US$? Thank you sir.
But our strategy is not to sell futures now.
We need yen to make the payment, and since the contract size is quoted in yen we should buy futures now and sell later. (If the yen increases in value, the the payment to the supplier will cost us more in $’s, but the yen futures will make a profit)
(I don’t know which book you are looking at, but both Kaplan and the examiner himself, correctly buy futures now!)
Pardon me sir, yes I made a mistake there. Perhaps because the spot rate and the futures rates are quoted in slightly different ways, I am still finding it hard to understand the logic. Sorry to disturb you sir, I can understand you are busy. But, I heartily appreciate your help. thanks 🙂
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