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In part a)multilateral netting,the spot mid rates may be used right?
In the bpp answer they have arrived at slightly different amounts to what it would be at spot mid rates.Which rates have they used?
I tried the buy/sell and mid but im getting a different answerIn multilateral netting you would use the spot rates unless the questions said to use different.
This question specifically stated to use mid-rates, and this is what they have used in the answer.
For example, the mid-rate for US$ is (1.4358+1.4366)/2 = 1.4362
This is the rate that they have used to convert the US$ to GB£On part b) they have concluded that the option will be advantageous if the option is not exercised and USD is weaker than a certain spot rate. Then they have calculated Required spot rate for each strike price. How they’ve calculated amounts 266,250 and 268,125 and 270,000? I don’t understand this part. Could you please clarify? Thanks!
The have the option on 6 contracts of GBP 31250, which effectively gives the the right to convert GBP 31,250 to USD at the strike price.
So at a strike price of 1.42, it would convert to 6 x 31250 x 1.42 = $266,250Same idea for the other two strike prices.
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