- This topic has 4 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
Hi Respected Sir,
Sir 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.
But BPP have subtracted 3 month rate from the difference
They have done it like this
=1.5398-(difference)
=1.5374Sir can you confirm Did BPP made mistake here??
Sir My Next Question is Regarding the Exchange rate it is quoted as dollar/pound
but if we look at futures it is given in pounds/dollars
now in order to calculate the basis can we use the spot rate of 1.5510 or we have to reciprocal it??
Bpp kit have done it like this 1.55275(Future Price)-1.5510(Spot)=0.0235
Sir please advice
First question:
The BPP answer is correct (and is a copy of the examiners answer 🙂 )
Since the 12 month forward rate is lower than the 3 month forward rate, then the 4 months forward rate must be lower than the 3 month forward rate as well.Second question:
I appreciate that the Pound/$ and $/Pound are confusing, but I am afraid that is the way it is done. But look at the rates – the futures prices are similar in size to the spot rates, so they are the same quotes and do not need to be reciprocalised.
And it is the lock-in rate that they have calculated (and the examiners answer actually says this – I don’t know whether or not BPP copied that bit of wording 🙂 )
Have you watched my free lecture on lock-in rates?
- The topic ‘PolyTot,SFM,6/04’ is closed to new replies.