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sir in this question’s part a) where the question asks to find expected receipts if the option is not exercised. I wanted to ask that why can’t we use the FORECASTED SPOT RATE to find out the result if options were not exercised?
In other words we found out the expected closing price of futures using interepolation: 1.0345+(1.0369-1.0345)x2/3=1.0361 and we also derived the unexpired basis as -.0011, so can’t we add these two to arrive at the expected spot price=1.035 and use this to convert the swiss francs to $s?
so my answer to this part of question( receipt if option not exercised) was: 12.3mx1.0361-105350=12.62515m
Do you think this is an incorrect method?
The 1.0361 is not what the futures price will be. It is the lock-in rate (which gives the net effect of converting at spot of the date of the transaction together with any gain or loss on the futures).
So what you are doing is not correct (even though you would not lose all of the marks).
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