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NTC SFM June 2002 BPP kit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › NTC SFM June 2002 BPP kit

  • This topic has 5 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 25, 2016 at 5:28 am #301938
    thegoal24
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    Hello Sir,
    Please may you help? In part b) I do not understand the treatment of the Hongkong receipt in the solution. Why couldn’t we enter a forward contract for the receipt vs it being converted to $US? I’m totally lost as to what’s going on there.
    Calculating the options was quite tricky as well

    February 25, 2016 at 12:04 pm #301999
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    Because the HK currency is pegged against the US$, it means there is a fixed exchange rate between the two currencies.
    So rather then try and hedge the HK receipt on its own, it is converted to $’s so that then it can be netter against the $ payment and only the net $ amount needs then to be hedged.

    February 25, 2016 at 5:07 pm #302049
    thegoal24
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    Thank you sir for the help i now understand the concept of pegging – that is why i was lost.

    If I may ask again, i did not understand taking into account the financing the cost of the premium to compare it with the money market hedge?

    February 25, 2016 at 8:06 pm #302076
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    The premium is payable immediately, whereas with money market hedging no cash flow occurs until later.

    To make them fully comparable then we need to take account of that fact. (Although it is a minor point for the exam)

    February 25, 2016 at 8:21 pm #302083
    thegoal24
    Member
    • Topics: 6
    • Replies: 26
    • ☆

    Thank you Sir, it is clear now

    February 25, 2016 at 8:33 pm #302086
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    You are welcome 🙂

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