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Dear Tutor,
Do we use spot rate now or the futures price quoted to find number of contracts . eg $12m needs to be converted , contract size Euro200000 , spot 1.3300 futures 1.3350 .
answer in kaplan book is converting 12m using spot rate but revision kit has some questions that convert using futures rate .
Also i don’t really understand tick size, can show my answer in the paper without using tick price and just multiplying number of contracts with contract size and profit or loss on futures.
Many thanks for your time.
Indeed, some questions use the spot rate and some use the futures price (even the examiner is not consistent).
I think it more sensible to use the futures price (since this is what we are ‘gambling’ on) but you will get full marks using either (even though the answer may be slightly different sometimes).
With regard to ticks, there has never been a question where you actually need to use ticks – I never bother with them and do what you have written.
For your information, however, a tick is a change of 0.0001. Dealers can calculate the profit for a change of 1 tick in the price, for one contract (and it is often given in questions) and so the total profit will be the number of contracts x the number of ticks change in price x the profit for one tick/contract.
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