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in calculating forward rate for month way we divided by 9 month
also from were we got 179.745 ( 270/179.745 the balance 270 what does 179.745 mean and from where we got this rateWe need a 4 month forward rate, but we are only given rates for 3 months and 12 months.
So the estimate of the 4 month rate is the 3 months rate plus 1/9 of the difference between the 3 month and 12 month rates.
The official spot rate is 156.30 peso to the pound. However the question says that the actual unofficial rate will be 15% worse. So the rate they will be using is 156.30 plus 15% = 179.745 peso to the pound.
Dear John,
In this question, when calculating the premium for the option, why did they use spot rate of 1.5475 and not 1.5510.The premium is payable in $’s, so they need to buy dollars. Therefore the relevant rate is 1.5475 when converting to pounds.
How to know the premium is payable in dollar John? Thanks for ur kind explanation ?
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