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So for this question date of sale is not given .. how did they chose June future can u pls explain
Ibhave one more doubt for this question
I choose the bid or offer rate like this.
Fr eg: for fra
I thought like this we sell euro to bank to buy dollars . So bank buys euro from us and so we use the bid rate. And for fra I used the bid rate.
Now for the premium payable in the options they have chosen the offer rate..
Can u pls explain. We have to make payment in dollars. And the base currency is in euro.so bank will buy or sell euro from us.so can you explain why we used the offer rate.The question states in the first paragraph that the date today is 1 March 2016.
The hedging required in (b) (ii) is for a receipt in 3 months time, which is therefore on 1 June 2016.
June futures mature on 30 June (March futures would not work because they mature on 31 March).The premium on the options is quoted in €’s. Lirio works in $’s and therefore needs to buy €’s.
Therefore we use the higher rate (using the lower rate would mean we ended up paying less $’s which could not possibly be the case – it is the banks who make the profit from the spread 🙂 ).
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