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How do u calculate the five months forward rate using 3month and 1yr rate?
rate * N/D, exlpain the N and D pls
Thank You 🙂Q2) In order to do money market hedging, here the logic is net import of $1150k
so imports means we’re buying from USA then we have to pay $1150 in five months time. A
As per my knowledge first we have to invest $1150 at the rate of 2%. 2% is given for 6months, then our transaction is upto 5 then 2%*5/6 is my calculation crrt here?How do u do this sum, can u clarify pls thnks in advance 🙂
Question 2:
Why on earth would you want to invest $1150 when (because of interest) you will end up with more that the $1150 you need?
You should watch my free lectures on money market hedging (and if needed the relevant ones from Paper F9, because this is revision of F9)
Yea I know it is found by linearly, but in the MS they take 3m rate*7/9 and 1yr rate*2/9, why is that….
I did like this 3m to 5m the gap is 2 so 1.9066*2/9 then the same for the other, but still the answer is wrong….can u clarify pls thnks.In yr lectures- P is due to receive $5M in 3 months time. u do the working like this the first step is Borrow $ now for 3months and later Invest.
Again lecture no.2- Q is due to pay $8M in 3 months time.Then the first step is to Invest now and later Borrow.. oki so
So in the question above we are due to make payments in 5 months time, as per yr lecture the first step is to invest ryt?
In future, say which exam the question is in so that I don’t have to go searching through all of them.
1.9066 + 2/9(1.8901 – 1.9066) = 1.9029
The first step in the calculations is to decide how much is needed to invest, so that then you can calculate how much to convert, so that then you can calculate how much to borrow.
(Obviously in practice you need to borrow, in order to convert, in order to deposit, but you can’t know how much to borrow until you have calculated how much you need to invest)
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